Inventory of Small Holder Contract Farming Practices in Zimbabwe
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Transcript of Inventory of Small Holder Contract Farming Practices in Zimbabwe
Support Capacity for Enhanced Market Access and Knowledge
Management (SCAPEMA)
Inventory of Smallholder Contract Inventory of Smallholder Contract Inventory of Smallholder Contract Inventory of Smallholder Contract Farming Practices in ZimbabweFarming Practices in ZimbabweFarming Practices in ZimbabweFarming Practices in Zimbabwe
December 2009December 2009December 2009December 2009
Inventory of Smallholder Contract Farming Practices: Revised Final Report, December 2009 Page 2 of 48
SNV Netherlands Development Organisation
Research report by M. Dawes, R. Murota, R. Jera, C. Masara and P. Sola
for SNV, 2009 ©
Inventory of Smallholder Contract Farming Practices: Revised Final Report, December 2009 Page 3 of 48
SNV Netherlands Development Organisation
Preface
Zimbabwe finds itself in a severe economic crisis. The agricultural sector and related activities accounted
for over 60% of GDP but has plummeted to just a trickle. Agriculture formed an important base for the
agro-processing and manufacturing industries, which in 2008, were operating at less then 20% of their
capacity. With the introduction of the multi-currency regime in 2009 this has improved somewhat.
Tobacco and horticulture sectors are examples of Zimbabwe’s failure in agricultural production. Tobacco
“the golden leaf”, was the county's main export product, with 650 million USD/year of export earnings,
accounting for around 40 percent of its foreign currency earnings. Some 700,000 people were
dependent on the industry for their living. Production of tobacco plunged from a record level of 267
million kg in 2000 to a 73 million kg in 2007. In the 90s the country’s horticultural export sector was
growing with 30%, and brought in 350 million USD/year and severely threatened Kenya’s position as
Africa’s prime exporter to the EU. But it has dropped to 19 million USD/year, many companies went out
of business since 2000.
However, there is also the success story of smallholder cotton farming that has become a mainstay of
the country's agricultural economy, earning foreign exchange to the tune of 150 million USD annually.
Zimbabwe has as many as 200-400,000 cotton cultivators, most of them smallholder farmers.
Zimbabwean cotton was of high quality and productivity.
Smallholder agricultural recovery will need to address issues like access to (guaranteed) markets,
agricultural advise and access to inputs. Contract Farming seems as a promising option and has been
practiced for quite some time in Zimbabwe. With a diminished commercial farming production base, the
smallholders have become very important for many agroprocessing companies. However there are many
pitfalls for companies in dealing with smallholders and vice versa. Smallholders and companies have to
learn how to deal with each other. This document identifies lessons and best practices with respect to
Contract Farming in Zimbabwe.
Contract farming needs to be accompanied with a sound policy of supporting measures, like possibility of
contract enforcement, but also benefits such as tax breaks for companies who contract smallholders and
kick-start subsidies financed by Donors for contract farming extension support.
With this publication we hope to generate and disseminate knowledge useful for those involved in the
smallholder agricultural sector. Zimbabwe’s experiences in contract farming are also useful for other
countries in Sub-Saharan Africa. Raising agricultural productivity in Africa and involving the smallholder
farmers in that process is one of the key priorities, as emphasised in the World Development Report
2008 of the World Bank. Contract Farming is one of the pathways to get there.
Rik Overmars
Portfolio Coordinator
SNV Zimbabwe
Inventory of Smallholder Contract Farming Practices: Revised Final Report, December 2009 Page 4 of 48
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Contents List of Acronyms.................................................................................................................... 6
Summary............................................................................................................................... 7
1. Introduction ..................................................................................................................... 8
2. Contract farming actors ............................................................................................... 10
2.1. Contract Farming Companies.......................................................................................10
2.1.1. Cotton ..............................................................................................................11
2.1.2. Legume crops ....................................................................................................11
2.1.3. Reapers ............................................................................................................11
2.1.4. Ostrindo............................................................................................................11
2.1.5. Paprika .............................................................................................................11
2.1.6. Seed crops ........................................................................................................11
2.1.7. Sugar cane........................................................................................................12
2.1.8. Tobacco ............................................................................................................12
2.1.9. Vegetable crops .................................................................................................12
2.2. Supporting institutions ...............................................................................................12
2.2.1. Public institutions ...............................................................................................12
2.2.2. Civil institutions .................................................................................................13
2.2.3. Non-governmental institutions..............................................................................14
2.3. Financial institutions ..................................................................................................14
3. Farmer organisation and contract specifications................................................................16
3.1. Organisation of farmers ..........................................................................................16
3.2. Contract signatory .................................................................................................16
3.3. Contract specifications ...............................................................................................18
3.3.1. Contract duration ...............................................................................................18
3.3.2. Specifying the contract quota ...............................................................................18
3.3.3. Grading requirements and quality specifications......................................................18
3.3.4. Logistic support..................................................................................................19
3.3.5. Pricing formula...................................................................................................19
3.3.6. Method and time of payment................................................................................20
3.3.7. Extension support...............................................................................................21
3.3.8. Production support .............................................................................................22
3.3.9. Input loan repayment terms.................................................................................23
3.3.10. Availing credit facilities to farmers.........................................................................24
4. Classification of farming models................................................................................... 24
4.1. Model descriptions .....................................................................................................24
4.1.1. Centralised model...............................................................................................24
4.1.2. Nucleus estate model..........................................................................................24
4.1.3. Multipartite model ..............................................................................................24
4.1.4. Informal model ..................................................................................................24
4.1.5. Intermediary model ............................................................................................24
4.2. Recommended models for surveyed companies..............................................................25
4.2.1. Centralised model...............................................................................................25
4.2.2. Nucleus Estate Model ..........................................................................................27
4.2.3. Multipartite model ..............................................................................................27
4.2.4. Informal model ..................................................................................................27
5. Factors reducing the success of contract farming ventures........................................... 30
5.1. Productivity ..............................................................................................................30
5.1.1. Reasons for low productivity ................................................................................30
5.1.1.1. Resource limitations.....................................................................................31
5.1.1.2. Poor management .......................................................................................32
5.1.1.3. Lateness of operations .................................................................................32
5.1.1.4. Over-reliance on input credit schemes ............................................................32
5.2. Contract default ........................................................................................................32
5.2.1. Farmer default ...................................................................................................32
5.2.1.1. Extra-contractual marketing..........................................................................32
5.2.1.2. Domestic consumption .................................................................................34
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5.2.1.3. Input diversion............................................................................................35
5.2.1.4. Negligence .................................................................................................35
5.2.1.5. Loan default ...............................................................................................35
5.2.1.6. Repayment of input loans in cash ..................................................................35
5.2.1.7. Yield fraud..................................................................................................35
5.2.1.8. Default by Mkwasine farmers ........................................................................36
5.2.2. Company default ................................................................................................36
5.2.2.1. Late or non-supply of inputs..........................................................................36
5.2.2.2. Failure to collect produce..............................................................................36
5.2.2.3. Late payment .............................................................................................36
6. Recommendations ....................................................................................................... 38
6.1. Preliminary investigations ...........................................................................................38
6.2. Recommendations for the drafting of contract agreements ..............................................40
6.3. Recommendations for contract specifications .................................................................41
6.4. Directed farming .......................................................................................................42
7. References................................................................................................................... 44
Appendix 1: Checklist of factors to consider before engaging a community in contract farming............45
Appendix 2: Factors to consider when drafting contract specifications..............................................47
Appendix 3: Additional reading ..................................................................................................48
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List of Acronyms
AGRIBANK Agricultural Bank of Zimbabwe
AgriSeeds Agricultural Seeds and Services
ARDA Agricultural and Rural Development Authority
AGRITEX Department of Agricultural, Technical and Extension Services
Cargill Cargill Cotton
CBZ Commercial Bank of Zimbabwe
CGA Cotton Ginners Association
CMB Cotton Marketing Board
Cottco The Cotton Company of Zimbabwe
CTE Commodity Trading Enterprise
Delta Delta Corporation
DOI Department of Irrigation
ESAP
EPZ
FAO
Economic Structural Adjustment Programme
Export processing zone
Food and Agricultural Organisation
FAVCO Fruit and Vegetable Cooperative
FTLRP Fast Track Land Reform Programme
GMB Grain Marketing Board
IFAD International Fund for Agriculture Development
KST Khula Sizwe Trust
MOA Ministry of Agriculture
MTGT Musengezi Tobacco Grower’s Trust
NACGMB National Association of Cotton Ginners Merchants and Buyers
NEPAD
NCC
New Partnership for Africa’s Development
National Cotton Council
Ostrindo PT Royal Ostrindo
RBZ Reserve Bank of Zimbabwe
SAFIRE Southern Alliance for Indigenous Resources
Selby’s Selby Enterprises
SNV Netherlands Development Organisation
TIMB Tobacco Industry and Marketing Board
TZI Trans-Zambezi Industries
UP Union Project
ZABG Zimbabwe Allied Banking Group
ZESA Zimbabwe Electricity Supply Authority
ZITC Zimbabwe Irrigation Technology Centre
ZLT Zimbabwe Leaf Tobacco
ZNA Zimbabwe National Army
ZTA Zimbabwe Tobacco Association
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Summary Of the many types of market linkage, contract farming has been recognised by Zimbabwean and African
leaders as a system that has the potential to increase productivity and reduce rural poverty. Contract
farming can potentially provide farmers with many benefits that extend far beyond the provision of
markets including access to input loans and credit, provision of extension and technical advice,
appropriate technology and management systems. These benefits are particularly relevant for
Zimbabwe’s smallholder farmers who, until recently, were experiencing unprecedented economic
hardship due to economic decline and hyperinflation. Agricultural inputs continue to be of limited
availability on the open market and there is a diminished capacity of public sector agencies to support
smallholder farmers.
This report was submitted to SNV Zimbabwe in December 2007, revised in 2009, and documents the
experiences of twenty-five companies contracting smallholder farmers in Zimbabwe to produce cotton,
tobacco, paprika, sugar cane, vegetables, sorghum and various seed and legume crops in a
hyperinflationary environment. The only company contracting farmers to produce livestock processes
ostriches for their meat and leather. The report presents information on organisation of contracted
farmers, quota specification, extension service delivery, supply of logistical and input support,
calculation of producer prices and requirements for input loan repayments.
Generally, companies utilizing the same product were found to use similar contract methodology.
Contract arrangements are classified into one of four models on the basis of the contracted product, the
use of the product by the company and company resources and management availed to the farmer.
Many of the companies that were operating under a low input and management model (‘informal model’)
may benefit from a higher management or ‘directed’ approach to contract farming. The ‘multipartite’
model was being used successfully by two companies who were working with supporting institutions to
assist their contracted farmers.
Many factors contribute to the mediocre results reported by most companies engaging smallholder
farmers. Low yields and poor quality were identified by companies as reasons for reduced viability of
contract agreements. Low productivity was found to occur because of inadequate farmer resources, poor
management, poor timeliness of operations and over-reliance on input credit. Contracts can also fail
because of default from one or both of the partners. Ways in which farmers were found to default
included extra-contractual marketing, domestic consumption, input diversion, negligence and loan
default. Side-marketing was singled out as the main mode of farmer default – the reasons for side-
marketing are identified and suggestions are made on how this practice might be minimised. Companies
default due to late- or non-supply of inputs, failure to collect produce and late payment. If corrective
measures are not taken, default can sour relationships and have serious repercussions in future
agreements.
The report is concluded by listing the factors and ‘best practices’ that companies may want to consider
before and after contracting smallholder farmers at a particular site. Adoption of some of the
recommendations should strengthen ties between the two contracting parties. One of the main
recommendations is that companies consider investing in a directed farming approach because most
productivity and default related issues can be managed. It is hoped that the adoption of some of these
recommendations will improve the success of contract farming in Zimbabwe for the benefit of both
farmers and companies.
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1. Introduction
This investigation on contract farming in Zimbabwe was jointly commissioned by SNV (Netherlands
Development Organisation) and IFAD (International Fund for Agriculture Development) under a regional
programme known as ‘Strengthening Support Capacity for Enhanced Market Access and Knowledge
Management’ (SCAPEMA). The overall goal of the programme is to reduce rural poverty in Eastern and
Southern Africa and the purpose of the programme is to increase returns to the rural poor from more
equitable and efficient linkages with markets.
A record contribution of 66% was made by smallholder farmers in the 1996 marketing season in which
Zimbabwe produced 2.045 million tonnes of maize. During this year the smallholder farming sector
achieved average yields of 1,459 kg/ha. This achievement was made against a backdrop of favourable
weather and a government input support programme (Agricultural Recovery Programme). The
productivity of the smallholder farming sector has declined over recent years and the average maize
yield for this sector was only 130 kg/ha in the 2007/08 growing season. This trend was not restricted to
maize – there was deteriorating productivity in almost every other agricultural sector. The reasons for
these dramatic reductions in just over 12 years can be attributed to a rapidly deteriorating macro-
economic environment, unfavourable government policies, and a poorly implemented land reform
programme.
Zimbabwe’s economy was in decline since before 2000 and the years preceding 2009 were characterised
by hyperinflation. Hyperinflation, foreign currency shortages, spiralling black-market foreign currency
exchange rates and shortages of bank notes combined to make even the simplest of transactions very
difficult.
The Zimbabwe government’s land reform programme commenced in 2000 and resulted in the
dismantling of the economically important large-scale commercial farming industry. National productivity
decreased to a fraction of what it was at the turn of the century which has had a debilitating effect on
the nation’s economy. The service industry that once supported the large-scale farming sector has been
seriously compromised resulting in hardships for smallholder farmers who also relied on these services.
Government policies that had an adverse effect on productivity included a single-channel maize
marketing system and price controls on all commodities. The Grain Marketing Board (GMB) was given
the mandate to be the sole trader in maize and wheat in 2001. Unattractive producer prices resulted in
farmers having little incentive to produce maize in excess of their subsistence requirements. In an
attempt to rein in spiralling hyperinflation the government instituted price controls on all commodities in
June 2007. Companies were forced to sell their goods at a loss and widespread shortages of all
commodities became commonplace.
This general decline resulted in farmers facing challenges at almost every step in preparations,
production and marketing. It became almost impossible for smallholders to source finance to purchase
their inputs. Inputs became very scarce in a shrinking formal marketplace and were diverted to black
markets where they were sold for prices that dwarfed official gazetted prices. Farmers also found it
difficult in the hyperinflationary environment to calculate whether they might make a positive return on
their farming investments. Poor working conditions for government employees resulted in losses of
qualified staff in general; in particular the Department of Agricultural, Technical and Extension Services
(AGRITEX) was no longer able to provide farmers in many areas with quality extension services. Officers
were also restricted in mobility due to lack of vehicles. The nation’s electricity supply authority (ZESA)
no longer provided a reliable service, resulting in lower productivity at smallholder irrigation schemes.
Farmers with surplus produce faced challenges in accessing market information and delivering the
produce to markets due to deteriorating infrastructure. Few private transporters were willing to risk
travelling to remote communal areas due to high fuel costs and poor roads; farmers had no choice but
to participate in unprofitable local sales to institutions, small businesses, and traders at the farm gate.
Farmers with access to transport would often take produce to urban markets where higher prices are
paid for produce. However, these transactions are often unpopular because of the amount of time the
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farmer needs to spend away from farming operations and the difficult conditions that have to be
endured at the markets.
Smallholder productivity in Zimbabwe is generally low. It should be noted that the national average yield
achieved in 1996 was still significantly less than the yield potential of local maize cultivars. Farmers do
not generally use high standards of management and the communal farming system is often
characterised by poor timing, low standards and wasted resources.
Zimbabwean industry was once characterised by one of the most vibrant agro-processing sectors in
Africa. One of the consequences of the land reform programme was the severing of traditional supply
lines for companies involved in agro-business. At the time of the investigation these companies were
operating at a fraction of their potential capacity and some companies with access to scarce foreign
currency were importing commodities that were once locally produced. Persistent shortages of produce
provided smallholder farmers with an important opportunity. Many companies were having to rethink
their strategies for securing raw materials and showed a new interest in the smallholder farming sector.
Contract farming arrangements between companies and smallholder farmers can be advantageous to
both partners because they reduce the risk of transactions at the informal marketplace – farmers
without secured markets face the risk of selling produce at a loss due to market oversupply whilst
companies without guaranteed supply may not be able to keep their factories running. Farmers may also
benefit from embedded services supplied by the company including access to input loans and credit,
provision of extension and technical advice, use of appropriate technology and company management
systems. Contract farming has been identified as a system capable of stimulating agricultural production
in Africa, at one stage being given a central role in the New Partnership for Africa’s Development
(NEPAD) strategy to revive the continent’s agriculture. The Zimbabwean Government expressed support
for contract farming (Anonymous, 2007) for the same reasons. The World Bank in its 2008 World
Development Report mentions Contract Farming as one of the options for improving input & output
markets, as well as raising agricultural productivity (World Bank, 2007).
Many Zimbabwean companies contract smallholder farmers. The main objectives of this study were to
• Investigate and describe the contract methodology used by companies contracting smallholder
farmers;
• Highlight ‘best practices’ and ‘lessons learnt’;
• Make recommendations to improve contracting systems for the benefit of both smallholder
farmers and companies.
It is hoped that the knowledge generated by this study will assist companies and farmers in improving
their contracting systems and ultimately result in improved farmer livelihoods and food security and
national economic growth.
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2. Contract farming actors
In the context of this report, contract farming is defined as an agreement reached between a company
and farmers for the supply of agricultural products to the company. In Zimbabwe, the frequency of
contract farming between commercial companies and smallholder farmers is related to the crop being
grown. In 2006/07 the nation’s cotton crop was almost entirely produced by about 200,000 smallholder
farmers, almost all of whom were contracted. Conversely, smallholder farmers used to produce only a
fraction of the national tobacco crop which is one of the country’s most important export crops, however
lately this percentage is rapidly increasing. Companies that were interviewed during the course of the
field work are presented in Table 1. The list is organised by crop type because companies within the
same industry were often found to use similar contract farming methodology.
2.1. Contract Farming Companies
Many of the companies listed in Table 1 started contracting during or after the early 1990’s. Prior to this
date, the marketing of many agricultural products was regulated by the State through a number of
statutory Marketing Boards. In 1992 the Zimbabwe government embarked on the World Bank’s
Economic Structural Adjustment Programme (ESAP) which encouraged the deregulation of agricultural
marketing. This period saw the commencement of liberalisation programmes for the main agricultural
products including grain, coffee, dairy products, cotton, beef and pork which increased opportunities for
companies to become involved in contract farming.
Table 1: Companies and their smallholder contract partners
Product type Company name Primary company business
First year of contract farming
Number of contracted farmers (2006/07)
National contracted area in 2006/07 (ha)
Cargill Ginning & lint export 1996 70,000 90,000 Cotton
Cottco Ginning & lint export 1992 77,000 180,000
Cotton Seed Quton Seed sales 1999 6,500 25,800
GMB Wholesaling 1931 1,700 15,000
Olivine Canning 1990 Abandoned Not applicable
Legume crops
Reapers Wholesale 1997 1,000 400-500
Ostriches and chickens
Ostrindo Poultry processing 1997 322 Not applicable
Cairns Spices Oleoresin extraction 1996 5,000 6,000-
7,000
Capsicum Pod export 1998 800 2,000
CTE Pod export 1997 Not available Not available
Paprika
Hy-veld Oleoresin extraction 1992 1,000 200
AgriSeeds Seed sales 1991 3,000 1,500
ARDA Seeds Seed sales 2003 700 520
Seed crops
SeedCo Seed sales 1997 150 75
Sorghum Delta Brewing 1989 4,450 7,000
Sugar cane Mkwasine Sugar manufacture 1981 191 1,910
Northern Tobacco
Processing and export
2004 900 1,000-1,200
Tribac Processing and export
2005 150 193
Tobacco
ZLT Processing and
export
2004 473 790
Cairns Canning 1997 <2,000 1,095
Favco Wholesaling 1980 Not available Not available
Honeywood Canning 2003 257 60
Wholesale
Fruiterers
Wholesaling 10 20
Selby Enterprises
Processing and export
1994 50 20
Vegetables and/or fruit
TZI Processing and export
2006 250 60
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2.1.1. Cotton
Cotton has been grown under contract by smallholder growers for longer than any other crop and the
industry contracts more communal farmers than all other industries combined. Prior to 1992 the Cotton
Marketing Board (CMB) controlled and coordinated the cotton industry from primary purchase and
delivery of seed at the farm gate to sales of lint. The CMB’s statutory monopoly in purchasing, ginning,
marketing and export of cotton was removed in the 1993/94 growing season when it was replaced by a
new company called The Cotton Company of Zimbabwe (Cottco).
Cargill (a US-based multinational) entered the market shortly after liberalisation. In the 1998/99 season
Cottco and Cargill had 67 and 21% of the market share, respectively. For many years these were the
only players; however this changed from the early 2000’s and by 2006/07 there were over 20 marketing
companies. Most of the newer companies were small and accounted for a very small proportion of the
crop. In 2009 new legislation has been put in place obliging companies to provide and pool resources for
input provision to contracted farmers in central depots. This forced smaller companies out of contracting
options but also reduced side marketing.
Quton is a wholly owned subsidiary of SeedCo which contracts farmers to grow cotton seed. Quton’s
grower base changed significantly after the commencement of the Fast Track Land Reform Programme
(FTLRP) in 2000. Prior to this time the company mostly contracted large-scale commercial farmers;
however, more recently its grower base has almost been entirely comprised of smallholder farmers.
2.1.2. Legume crops
Three companies contracting smallholder farmers to grow legume crops were interviewed. The Grain
Marketing Board is a parastatal organisation that has been in operation since 1931. Although the
company purchased a wide range of agricultural produce from smallholder farmers, it only used formal
contract agreements for soybeans, groundnuts and sugar beans.
Olivine Industries consider themselves to be pioneers in contracting the smallholder farming sector. The
company has worked with farmers at many different irrigation schemes over a 16 year period in the
production of dry beans. Soybeans were introduced into dry-land communal farming areas in Hurungwe,
Mt. Darwin and Hwedza in about 1997. However, the company ceased smallholder contracting in 2006
because low crop returns resulted in unviable logistical support.
2.1.3. Reapers
Reapers is predominantly interested in purchasing groundnuts for resale to the agro-processing sector.
The company contracted about 1,000 farmers in Makoni and Mutoko.
2.1.4. Ostrindo
Ostrindo was found to be unique for a number of reasons. Firstly, it was the only company interviewed
that contracts farmers to produce livestock. Ostriches and chickens are well suited to production by
smallholder farmers and the company had made significant progress with this sector since the late
1990’s. Secondly, the company worked closely with Khula Sizwe Trust (KST), a local non-governmental
organisation, which assisted in farmer training and capacity building. Finally, Ostrindo was the only
company interviewed in the Matabeleland provinces.
2.1.5. Paprika
Paprika is an important smallholder crop grown under contract by smallholder farmers for companies
that export the extracted oleoresins or whole pods. Although Hy-veld Seed Company had the most
contracting experience of the paprika companies interviewed, Cairns Spices contracted the greatest
number of farmers. Paprika companies were found to prefer contracting cooperatives at irrigation
schemes and were unable to supply information with any accuracy on the number of growers or
contracted area.
2.1.6. Seed crops
SeedCo, AgriSeeds and ARDA Seeds contracted farmers to produce legume and grain crops for certified
seed production. Seed companies preferred to contract smallholder farmers to grow ‘peasant’ crops such
as cowpeas, bambara nuts, millet and sorghum because these crops were not popular with large-scale
farmers. Historically, SeedCo had used smallholder farmers to produce these crops, however low yields
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in more recent years had resulted in the company reducing its exposure to this sector. AgriSeeds
contracted dry-land farmers and farmers at irrigation schemes to grow cowpeas and sorghum, and sugar
beans, respectively.
2.1.7. Sugar cane
The setup at Mkwasine was found to be unique because it was the only estate to be interviewed.
Smallholder farmers at ‘Chipiwa’ resettlement produced sugar cane which was transported by rail to
mills where it was processed into sugar and a number of by-products. For many years this scheme had
been considered to be a model resettlement project however, the FTLRP reduced the viability of the core
estate and the programme was in danger of collapsing.
2.1.8. Tobacco
Tobacco is the most important of Zimbabwe’s agricultural export commodities. Processing companies
purchase tobacco from farmers at auctions and prepare it for export. Contract farming between
processing companies and farmers is a more recent development. There had been a moderate increase
in the number of contracted smallholder farmers since the mid-2000’s and this sector produced a fairly
insignificant proportion of the national crop. The commercial growers association, the Zimbabwe Tobacco
Association (ZTA), played an important role in linking groups of smallholder farmers to commercial
companies. Of these companies, only Tribac was still using ZTA to provide management and logistical
support to contracted farmers. Northern Tobacco and Zimbabwe Leaf Tobacco had graduated and were
operating their schemes independently of the ZTA.
2.1.9. Vegetable crops
The vegetable sector once played an important role in the country’s economy. Apart from the important
informal sector, there were over thirty companies involved in retailing, wholesaling and processing.
Nearly twenty of these companies exported produce to international destinations (Dawes, 2007). Cairns
Foods was mainly involved in the canning of peas and baked beans, and the manufacture of tomato
sauce. The company contracted farmers at irrigation schemes throughout Manicaland. Honeywood also
contracted farmers in Manicaland to grow tomatoes which were processed into canned ‘whole peeled
tomatoes’ and tomato pulp. Selby Enterprises had been contracting smallholder growers at an irrigation
scheme scheme in Mazowe District to produce baby corn since 1994 however the number of farmers
contracted had dwindled over the years. TZI were the former owners of Kondozi, a horticultural export
processing zone (EPZ) that operated a very successful smallholder outgrower scheme. After the 2004
government seizure of this enterprise a new smallholder outgrower scheme was started at Cashel Valley
for the production of gooseberries, mange tout, butternut and fine beans. Wholesale Fruiterers and
FAVCO represent two of the Harare-based vegetable wholesalers.
2.2. Supporting institutions
There were numerous institutions identified that provided support to smallholder farmers in Zimbabwe
and are classified as public, civil and non-governmental organisations.
2.2.1. Public institutions
At the time of the investigation, companies wanting to contract farmers to produce certain crops were
required to sign a Memorandum of Understanding (MOU) with various departments within the Ministry of
Agriculture (MoA). The MOU usually specified that contracting companies would provide farmers with
extension services, farming inputs including seed, chemicals, tillage, harvesting, curing and marketing
resources to a specified value. The agreement also addressed pricing, grower selection, contract
documents and security of land tenure for the currency of the scheme.
The AGRITEX structure is designed to provide a national network of extension support for smallholder
farmers. Each District has a post for a District Area Extension Officer who is supported by field staff at
the ward level. Permanent officers reside at many of the larger irrigation schemes. AGRITEX officers
were found to provide assistance to smallholder contracting companies at many locations. An example of
this cooperation was the extension support and input distribution services rendered to TZI’s contracted
farmers at Cashel Valley. The effectiveness of AGRITEX in supporting contract farming was limited by
• The fact that officers had no power to ensure that farmers heed good extension advice;
• Zimbabwe’s economic crisis. Poor employment conditions had resulted low morale and
motivation of officers and subsequent losses of experienced staff. The extension service was
also handicapped by scarcity of reliable transport.
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Responsibilities of the Department of Irrigation (DOI) include overseeing the overall planning, design,
construction, sustainable operation, maintenance and management of irrigation schemes. Clientele
includes farmers at smallholder irrigation schemes throughout Zimbabwe. DOI operates the Zimbabwe
Irrigation Technology Centre (ZITC) and is responsible for irrigation research, training and equipment
testing. In 2006 the Centre started an irrigation competition for small-holder irrigation schemes around
the country which considered many different criteria including scheme management, water
management, repairs and maintenance, cropping programme, record keeping, marketing strategy.
However, this competition was discontinued due to lack of funding.
It is important to liaise with local government authorities before embarking on contract negotiations with
farmers. Local government includes District Administrators, Rural District Councils and Ward Councillors.
Traditional leadership like to be aware of the activities taking place in their communities and village
headmen should also be consulted.
The National Cotton Council (NCC) was established by the Ministry of Lands and Agriculture shortly after
liberalisation of the cotton industry. The main objective of the NCC was to provide a forum for discussion
among stakeholders in the cotton sector and to act as an advisory body to the Ministry of Agriculture. All
major stakeholders, i.e. producers (represented mainly by the Zimbabwe Farmers’ Union), buying and
ginning companies (represented by the Cotton Ginners Association), spinners, oil expressers, research
institutions and AGRITEX, were invited to participate at frequent meetings. An Arbitration Committee
(within the NCC) was entitled to enforce agreements established among the stakeholders in the NCC and
penalise non-compliant companies (Larsen, 2001). The NCC was mandated to keep a database of all
contracted farmers throughout Zimbabwe which assisted in the reduction of farmer malpractice including
‘double contracting’. The system also allowed for the identification of credit defaulters.
The Tobacco Industries and Marketing Board (TIMB) is a regulatory and advisory statutory body which
controls and regulates the marketing of tobacco in Zimbabwe. It has many functions including the
registration of all tobacco growers. At the time of the study, companies wishing to contract farmers for
tobacco production were required to sign separate agreements with both the MoA and the TIMB. For
their part, farmers were required to sell their crop to the company.
2.2.2. Civil institutions
The National Association of Cotton Ginners Merchants and Buyers (NACGMB) was established in 2006
with the broad objective of ‘promoting production of cotton and its products for the creation of wealth
for farmers, processing companies and the nation’. The name of the association was subsequently
changed to Cotton Ginners Association (CGA) in 2007. One of the main reasons that the CGA was
formed was to enable the industry to monitor the field operations of individual company members to
ensure that farmer sales were made to the input financing company. The association also acted as a
watchdog to ensure fair trade practices and adherence to quality standards by member companies.
Malpractices such as side-marketing and non-observance of pesticide and grading regulations had had
detrimental effects on the cotton industry and the association sought to address these problems through
engaging both industry and growers.
ZTA started supporting the smallholder sector in about 1995 when it was still largely representing the
interests of the commercial farming sector. Assistance to smallholder farmers took various forms over
the years at the different sites and included tillage, input support and technical advice. ZTA’s smallholder
membership increased in number from about 300 in 1995 to 2,000 in 2000 with sites in Guruve,
Shamva, Marondera and Karoi/Tengwe. Of the 18,000-odd smallholder tobacco growers registered in
2006/07, about 4,500 were ZTA members. The FTLRF and subsequent decimation of the commercial
farming grower base from 2000 resulted in cutbacks and the ZTA was unable to continue supporting its
smallholder members. In 2005 Chidziva Tobacco Processors asked the ZTA to assist them in developing
a smallholder outgrower programme. The ZTA’s membership records enabled the identification of
competent growers in different areas of the country and a successful scheme was established. Other
tobacco companies followed suit including Northern Tobacco (2005), Zimbabwe Leaf Tobacco (2005) and
Tribac (2006). ZTA administered the Chidziva and Tribak sites, details of which are recorded elsewhere
in this report. Services provided to the processing companies included farmer selection, extension
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support and input distribution. Northern Tobacco and Zimbabwe Leaf Tobacco (ZLT) subsequently
decided to operate their schemes independently of the ZTA.
2.2.3. Non-governmental institutions
The Musengezi Tobacco Grower’s Trust was established in 2005 to assist smallholder tobacco growers in
the Musengezi Resettlement Area in Chegutu District (Mashonaland Central Province). Although the
Trust did not work with a contract partner, it used methods that would be beneficial to commercial
companies. Attention to detail was made in farmer selection, project management and monitoring.
Smallholder tobacco farmers were assisted in a support programme that provided inputs and with a
heavy emphasis on extension. During the growing season farmers were required to meet minimum
production targets before they received input support for the next crop phase. At the end of the season
farmers were assessed and reselected for the following season’s programme if they had met minimum
performance levels.
Khula Sizwe Trust (KST) was formed in Bulawayo in 2001 as a rural development organisation with a
mandate of equipping farmers with the necessary capacity to become engaged in contract farming
agreements with companies. Since its formation KST had worked primarily with smallholder ostrich and
chicken farmers contracted to its private sector partner Royal Ostrindo. Services provided by KST
included farmer mobilization and selection, routine site inspections, technical, business and
organizational skills training, mentoring and monitoring. The successful programme assisted farmers in
achieving greater efficiency than their commercial counterparts.
In 2004 the Food and Agricultural Organisation (FAO) started what was later to become known as the
Union Project, a programme designed to increase productivity (and therefore food security and incomes)
of farmers in Zimbabwe’s communal areas, funded by the EU. The Union Project board comprises FAO
and Zimbabwe’s three farmers unions; namely the Zimbabwe Farmer’s Union (ZFU) representing the
interests of smallholder growers; the Commercial Farmer’s Union (CFU) representing large scale
commercial farmers; and the Zimbabwe Commercial Farmers Union (ZCFU) representing commercial
and smallholder members. The programme supports farmers through an all-inclusive package of input
and extension support with a major emphasis on the latter. Farmers producing surpluses need markets
and an important component of the programme is to link productive farmers to companies in mutually
beneficial and sustainable partnerships. The programme worked with eight private sector partners in the
2007/08 season contracting smallholder farmers to produce a wide range of crops including cotton,
paprika, cowpeas, sugar beans, and sorghum.
2.3. Financial institutions
In an effort to increase flagging agricultural productivity the Reserve Bank of Zimbabwe (RBZ)
subsidized farmers through cheap agricultural loans. The Agricultural Sector Productivity Enhancement
Facility (ASPEF) was the primary source of agricultural funding in Zimbabwe and was distributed through
commercial banks to farmers at a concessional interest rate of 25% (at a time when annual inflation was
7,982%). The commercial bank distributing the loan was responsible for ensuring repayment to the
central bank. However, commercial banks did not consider smallholder farmers to be ‘bankable’ thereby
excluding them as direct beneficiaries of ASPEF funding. Some banks would finance groups of farmers
(associations) with ASPEF funding although such arrangements were uncommon.
The main way in which smallholder farmers could benefit through ASPEF funding was indirectly through
contract farming arrangements. Banks were willing to lend ASPEF money to companies involved in
contract farming if the funds were used to support smallholder farmers.
A source of funding that is exclusive to smallholder farmers was the government’s Public Sector
Investment Programme (PSIP) funding. Funded by the tax payer, these funds were distributed through
AGRIBANK (formerly the Agricultural Finance Corporation). The bank had an extensive network of
branches and offices throughout the country which enabled it to reach deep into the smallholder farming
areas. PSIP funds were guaranteed by the government because of the risky nature of smallholder
agriculture. The funds were designed to provide smallholder farmers with working capital for food
production to reduce poverty alleviation and increase food security. Preference was given to farmers
who organized themselves into groups – a stumbling point for many farmers who often do not like joint
liability. Importantly, no collateral was required. The farmers needed a letter of support from AGRITEX
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who confirmed the landholding and that the applicant(s) were capable. A credit history was also
important and evidence of movement of proceeds from crop sales into farmer accounts would assist in
loan applications. The bank tried to reduce risk of default by limiting loan sizes to small amounts.
Government funding of PSIP was restricted – AGRIBANK was awarded $960 billion out of a requested $3
trillion for the 2007/08 summer grain crop.
In summary, no funding was found to be available for individual smallholder farmers. Farmer groups
were more likely to access funding, particularly if they had a good track record. However, PSI funding
was very scarce. The best chance that farmers had to source input support was through contract
farming agreements, whereby the company accessed a subsidized ASPEF loan through the commercial
banking sector.
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3. Farmer organisation and contract specifications Table 2 on the next page summarises methods and specifications used by companies contracting
smallholder farmers.
3.1. Organisation of farmers
Most companies worked with groups of farmers that were either organised by the company or were pre-
existing. Cotton companies organised farmers using pyramidal structures. Self-selecting groups of up to
20 farmers elected a lead farmer for representation. Lead farmers combined to form a lead farmer
committee which elected an ‘executive chairman’ (Cargill) or ‘area representative’ (Cottco) who dealt
directly with the company agronomist.
Grower groupings played a less significant role in the tobacco industry. Neither Northern Tobacco nor
ZLT required that farmers should be organised into groups. Instead, the companies dealt directly with
individual farmers through their agronomists. Tribac contracted tobacco farmers with management and
extension support from the ZTA who had existing membership support structures in most tobacco
growing areas. Councillors elected by growers were responsible for overseeing the ZTA schemes,
reported directly to the agronomists and submitted a weekly report to the ZTA president.
Most farmers at irrigation schemes received organisational training from AGRITEX when their schemes
were commissioned and are typically governed by a committee comprising a chairman, vice-chairman,
treasurer, secretary and other committee members. Many schemes had also benefited from NGO
training programmes. For example, farmers at Mutambara B irrigation scheme have been trained by
SAFIRE to adopt structures similar to those described in the cotton industry. However, the SAFIRE model
also promotes leaders responsible for business, crop agronomy and record keeping. Kula Sizwe Trust
(KST) assisted farmers in forming ostrich outgrower groups comprising about 25 farmers for Royal
Ostrindo. A chairman elected by the group then represented the interests of farmers to both KST and
Ostrindo.
Most companies did not require that farmer groups had constitutions although some agreed that
constitutions might assist in loan and crop recovery. The exceptions were Cairns Foods and Cairns
Spices who insisted that groups had constitutions before being admitted onto the programme.
3.2. Contract signatory
Contracts were normally signed with group representatives at irrigation schemes and with individual
farmers at dry-land sites (Table 2).
Box 1
Changing from group to individual contracts
SeedCo contracted smallholder farmers to produce a number of seed crops including cowpeas. They
reported on plans to change their smallholder contracting methodology in the 2007/08 season because
their group method was not working – produce from a single bad farmer was reducing the price paid to
all the farmers. By contracting individuals it was hoped to increase accountability and improve
traceability.
When group contracts were signed a farmer representative usually guaranteed input loan repayment
and minimum quota deliveries by group members. Thus, the representative assumed responsibility for
the performance of growers because the company had no contact with individual farmers. Conversely,
individual contracts placed the responsibility for productivity directly with the individual farmer.
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Table 2: Contracting specifications
Crop type Company name Farmer
organisation1
Signatory2 Duration3 Quota
system4
Grading
requirements5
Delivery6 Pricing
formula 7
Payment
method8
Payment
time9
Cargill 1 1 1 1, 2, 3 4 1 1, 2, 3 1, 4 1 Cotton
Cottco 1 1 1 1, 2, 3 1 1 1, 2, 3 1 1
Cotton Seed Quton 1 1 1 1, 2, 3 4 1 5 1 1
GMB 2, 3 1 1 1, 2 1 1 1, 2, 4 1, 2, 3 1
Olivine 2 2 1 1 2 1 3 2
Legume crops
Reapers 1 1 1 1, 2 1 1
Ostriches and chickens Ostrindo 1 1 1 1, 3 1 1 2 3 2
Cairns Spices 1 2 1 1, 2 3 1 3 1 1
Capsicum 2 2, 3 1 1, 2, 3 3 1 3 2 2
CTE 2 3 N/A 1 1 1 2 1 1
Paprika
Hy-veld 1, 2 2 1 1, 3 3, 5 1 2 1, 2, 4 1, 2
AgriSeeds 1 2, 3 1 1, 2, 3 2 1 2 1 1
ARDA Seeds 1 2 1 1, 2 2 1 2, 5 1 1
Seed crops
SeedCo 1 2 1 1, 2, 3 2, 5 1 5 3 2
Sorghum Delta 1 1, 2, 3 2, 5 1 1, 2 3 2
Sugar cane Mkwasine 1 1 2 2 5 1 1, 3 2, 3 2
Northern Tobacco 3 1 1 1, 2, 3 4 1 6 2, 3 1, 2
Tribac 1 1 1 1, 3 4 1 6 2, 3 1, 2
Tobacco
ZLT 3 1 2 1, 2, 3 4 1 6 2, 3 1, 2
Cairns 2 2 1 1, 2 3 1 1 3 2
Favco 2, 3 3 N/A 3 3 2 2
Honeywood 2 2 1 1, 2 3 1 1, 2 1 2
Wholesale
Fruiterers
2 1 3 3 2 2, 3 2
Selby Enterprises 2 3 N/A 1, 2, 3 3 1 1, 3 5 2
Vegetables and/or fruit
TZI 1 3 N/A 1, 2 3 1 2 2 1 Many companies organised farmers into group structures (1). Others used existing structures (2). Some companies worked with individuals (3)
2 Contracts might be signed by individual farmers (1) or a representative of the group (2). Some companies did not sign contracts (3) 3 Contracts might be short seasonal (1) or longer term (2) 4 Quota calculations could be based on the amount of seed or number of chicks availed to the farmer (1). Other methods included a mutually agreed planted area (2) or a farmer commitment of a minimum expected performance (3) 5 Some companies did not require that the contracted produce was graded (1) whist others only required that seed should be cleaned (2). Many horticultural companies had
their own in-house grading criteria for the process or market (3). For some crops there were standard industry grades (4). Some companies required that the crop met with minimum criteria determined in their laboratories before grades were allocated and/or payment was made (5). 6 Expenses incurred in transporting produce to the company premises were paid by the company (1) or the farmer (2). 7 Pricing formulas were often based on production costs (1), prevailing market prices (2), international commodity price (3) or the import parity price (4). Seed companies would often give farmers a fixed premium on the prevailing market price for the particular grade (5). Tobacco farmers sold their produce at the auction floors (6) 8 Farmers were usually paid in cash (1), bank transfer (2) or cheque (3). Some companies paid farmers for the crop with an equivalent value of inputs (4). Smallholder farmers selling produce for export were permitted to be paid in foreign currency (5) 9 Farmers were paid when the product was transferred to the company (1) or some time later (2)
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Some companies did not sign contracts. Olivine Industries abandoned its group contracting system after many
years of disappointing results. According to the company, a lack of respect for contractual obligations was
manifested as a prevalent widespread smallholder farmer default. This was not an isolated viewpoint.
AgriSeeds did not always sign contracts with smallholder farmers because they believed that mutual trust
played a more significant role than the signing of contract documents. In a recent seed contracting scheme the
company designed a simple 2 page contract.
Selby Enterprises had been contracting farmers at Negomo Irrigation Scheme for many years and believed
that annual contracts were no longer necessary.
3.3. Contract specifications
3.3.1. Contract duration
All but two of the companies signed seasonal contracts. Mkwasine Estate signed a sugarcane ‘Planter’s
Agreement’ when farmers were first resettled in 1981. These farmers signed requisitions for services (e.g. land
preparation), inputs and cane transportation as required. ZLT also signed once off contracts with its farmers.
Inputs were advanced after the farmer had signed an annual production schedule.
3.3.2. Specifying the contract quota
Whether a farmer was contracted in a group or as an individual he was responsible for producing a minimum
crop yield of a certain quality for the company. This ensured that the company could budget on receiving
sufficient raw materials for its operations. There were three main ways in which companies determined the
minimum quotas that farmers should produce:
• Seed distribution. Some companies simply handed out seed to farmers and asked them to market the
crop through them on the basis of ‘first refusal’;
• Planted area: Most companies specified the area that the grower should plant;
• Minimum expected yield (kg/ha): Many companies specified a minimum yield that the farmers should
achieve.
Many companies specified both the planted area and the minimum yield that the farmer was required to
achieve. Vegetable wholesale companies (e.g. Wholesale Fruiterers and FAVCO) simply gave planting
programmes to farmers and guaranteed them a market.
3.3.3. Grading requirements and quality specifications
Requirements for grading varied between companies and were different for each type of crop. Most companies
contracting farmers to grow legume crops required minimal preparation. For example, Reapers did not require
grading to be done at all whilst AgriSeeds only required simple seed cleaning operations. In addition to seed
cleaning, Delta and SeedCo required that the seed should pass germination tests at the company laboratory
before being recommended for payment.
Sugar cane quality is determined by the sucrose content of the cane. Samples were analysed in the laboratory
to determine the price that farmers should receive for their produce.
Farmers producing paprika were required to grade their produce into three or four different categories
depending on the contracting company. Companies that did not own equipment to perform the standard
American Spice Trade Association (ASTA) test usually purchased the paprika by estimating the ASTA content.
Farmers were usually paid a discounted price because of the risk that the company assumed in purchasing
non-tested produce. The ASTA test is slow and even when companies had testing facilities, farmers often
preferred to accept the discounted price rather than being delayed whilst waiting for the test results to become
known.
Grading standards in the vegetable sector varied according to the market to which the produce was destined.
• Produce grown for canning did not have to be of the same high quality as produce supplied to the
fresh market;
• Produce destined for export markets is often required to meet with stringent quality specifications
from the market and legislated safety standards in the country where it was to be consumed. Quality
specifications might include colour, length and width, maturity, degree of hydration, and acceptable
blemishing. Legislated safety specifications are concerned with the application of crop chemicals and
resulting chemical residues on produce. Produce destined for European markets had to comply with
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the comprehensive EUREPGAP/GLOBALGAP code of good agricultural practice which was concerned
with crop production and management techniques, processing and handling systems, worker welfare
and environmental issues. Compliance was the basic entry level into European markets and many
retailers had their own, more stringent, codes of practice. Companies contracting these farmers were
required to prove that they were capable of meeting with these standards through audits and
certification schemes. For example, Selby Enterprises contracted smallholder growers to produce baby
corn for export to European markets. The farmer’s management committee were responsible for
ensuring that the produce met with GLOBALGAP standards. These farmers also had facilities to grade
their produce at the irrigation scheme. On arrival at the Selby pack-house samples of the produce
were taken and re-graded for verification.
The cotton and tobacco industries had their own industry standards. At the time of the investigation, the
cotton industry was in turmoil (see Box 2) and industry standards of grading were no longer being observed.
Up until the late 1990’s, quality had determined the price that the cotton farmer would receive. All companies
used the same National Cotton Council (NCC) grading system based on four grades and farmers were expected
to grade their crops by considering soil and insect stain, trash content, weak and immature fibre and colour.
Before making cash payments to farmers, the company would grade the cotton in standard grading rooms.
With the introduction of instant cash payments in the early 2000’s, cotton became ‘bush’ graded at collection
points. After initial pre-grading and weighing of delivered seed cotton the farmer would receive a part-
payment. A top-up payment followed once the cotton had been graded at a company facility.
Box 2
Deteriorating quality standards in the cotton industry
The legislation governing the grading of cotton was repealed in the early 1990’s when the industry was
liberalised. From this time until about 2000, the major marketing companies (Cottco and Cargill) agreed that
that farmers should continue to grade their cotton. This situation changed from the early 2000’s when a host
of new buyers entered the market, many of whom did not require farmers to grade their cotton. Grading of
cotton is labour intensive and farmers opted to sell their cotton to buyers without stringent grading
requirements. Cotton grading largely fell by the wayside and most companies discontinued paying a premium
for quality. In the survey Cargill indicated that they still required farmers to grade; conversely, Cottco reported
that they had started purchasing ungraded cotton. A result of the grading crisis was a deterioration in the
quality of Zimbabwean cotton.
Tobacco farmers were required to grade their tobacco according to standards set by the Tobacco Industries
and Marketing Board (TIMB). Tobacco grading is a complex procedure and takes into consideration the position
on the plant where the leaf was removed, colour, texture and presence of undesirable characteristics.
Generally grading was done well by smallholder farmers, especially in areas where there had been a long
culture of tobacco growing.
3.3.4. Logistic support
For most farmers, lack of reliable transport was the main factor preventing participation in higher value
markets. Therefore, contract farming would only be attractive to farmers if companies agreed to deliver inputs
and collect the produce. All companies involved in smallholder contracts reported that they collected produce
from farmers (Table 2). In the cotton industry farmers would often deliver cotton bales to central collection
points. In the vegetable industry farm gate collection was the norm. Tobacco companies gave cash advances
to farmers to enable them to pay transporters to deliver tobacco bales to the auction. Mkwasine transported
sugar cane as a free service to the sugar mills some 60 km distant.
3.3.5. Pricing formula
For contract farming to be sustainable it is important that both company and farmer make a profit. Companies
used a number of different criteria when determining the amount to be paid to the farmer.
• Production costs – by considering production costs the company could determine a reasonable profit
margin that should be paid to the grower
• Prevailing market prices – market prices often played an important part in pricing formulas
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Box 3
Unstable cotton prices during the 2007 marketing season
The 2007 marketing season was characterised by hyperinflation. At the beginning of the marketing season
members of the CGA agreed to pay all farmers the same price for their cotton. This was done in order to
ensure that companies that did not finance farmers (with inputs) would not lure contracted farmers with higher
prices. This agreement did not last long and market forces soon prevailed. During the marketing season
companies reported that farmers were holding onto their cotton as a hedge against inflation. Then, just before
the end of the season, government instituted price controls (June 2007) that halved the amount that
companies were required to pay farmers for their cotton.
During interviews farmers at a number of sites stated that they were unhappy about the large price
fluctuations experienced during the season. Farmers selling very early or very late in the season were
penalised with unviable low prices.
• International commodity prices – prices for cotton, paprika, sugar and horticultural export crops were
determined by the prices that companies received from their international markets
• Import parity price – GMB and Delta considered the cost of importing the commodity when
determining the price paid for some contracted crops
• Premium on prevailing market price – it is more difficult to produce seed crops and farmers were
typically rewarded a 20% premium on the commodity price
• Tobacco auction floors – bid prices at Harare’s three auction floors are determined by international
prices and local supply and demand. Prices were quoted in United States dollars and farmers were
paid in local currency at the official exchange rate. Each bale of tobacco on the open auction floor is
sold by an auctioneer who bids to a group of tobacco buyers each representing different processing
company. Tobacco grown with self-finance was auctioned at a different part of the building (the
auction floor) to contract grown (company-financed) tobacco. Each tobacco company that contracted
farmers had its own dedicated area to which farmers delivered their bales. The company would assign
each bale the average price paid for the same grade during the previous day at the auction floor. A
TIMB employee was present during this procedure to ensure that the bale was given a fair price.
Farmers complained that the system works in the favour of the companies who purchased the crop at
a discount of up to 20% compared to auction floor prices. Farmers also complained that they were
being prejudiced by the exchange rate which was significantly overvaluing the Zimbabwe Dollar –
therefore they were being paid less in real (USD) terms. The RBZ attempted to appease farmers by
paying them a quality-based support price.
Pricing of produce became a great challenge under hyperinflationary conditions in Zimbabwe especially for
companies without links to export markets. Price controls instituted by government in June 2007 created new
difficulties for farmers and companies by distorting markets and viability for both farmers and contractors.
Note: Since the introduction of the multi-currency regime and liberalisation of currency in- and outflows of the
country in early 2009, the situation has improved considerably and prices are much more stable and retain
their value.
Box 4
Cargill Cotton gains considerable inroads into market share through favourable payment policy
One of the major competitive advantages that Cargill introduced in the mid 1990’s was instant cash payments.
Prior to this Cottco had implemented a system of cheque payments in which farmers received cheques
between three and eight weeks after delivery. The new method of payment proved popular and Cargill
obtained a sizeable market share in its first season of operation.
3.3.6. Method and time of payment
In order to secure the contracted crop it is important to pay the farmer in such a way that he could access the
money quickly. This was especially true in the prevailing hyperinflationary environment in 2007. Farmers
preferred cash payment when the crop was collected. This method of payment ensured that the farmer
received the true value for his produce. Bank transfers had also become an acceptable method of payment and
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more farmers were opening their own bank accounts. Some companies paid farmers several weeks after
accepting the produce because of grading and administrative delays. When such delays were combined with
cheque payments side-marketing became prevalent.
Farmers producing paprika for Hy-veld Seed Company had the option of being paid for their produce with an
equivalent value of inputs (i.e. barter trade). Inputs were delivered to the site at a subsidised transport rate
using the same trucks that would collect the produce. This method of payment helped farmers to combat
inflation by converting their money into assets.
Box 5
Cargill’s ‘farmer voucher’ system
When Cargill started operations in Zimbabwe it did not use an input credit system. Farmers were given a
choice of being paid for their cotton in cash or as input vouchers redeemable prior to the following marketing
season. This system had numerous merits
• Farmers could grow their crop using their own inputs and they were not indebted through the credit
system;
• Inputs provided by Cargill were cheaper than those on the market because of bulk discounts and
savings through bulk transportation.
Despite these advantages, the voucher system did not prove to be very popular. In 2003 Cargill started its
own input credit scheme which grew to a value of USD 4,000,000 in the 2006/07 season. The company
continued to operate the two systems alongside one another. In the hyperinflationary environment of 2007 the
system had the added advantage of assisting farmers in avoid devaluation.
Note: Since 2009 new legislation is obliging contracting companies to provide an minimum input support to
contracting farmers through pooled resources in warehouses overseen by the Cotton Ginners Association.
Farmers are registered and receive a company and CGA registered voucher to collect their inputs (seeds &
fertilizers). Upon delivering of cotton registered farmers can only sell to their contracted company. The
effectiveness of this system in reducing side marketing will become known in 2010.
Farmers growing for Selby’s were unique in that they received part of their payment in foreign currency. The
scheme had a Foreign Currency Account which was credited when the company purchased baby corn.
However, these farmers also paid for their inputs in foreign currency and these debits were settled before
payments were made.
3.3.7. Extension support
One of the major potential advantages of contract farming is that farmers come into regular contact with
company extension staff employed to look after the company’s investments at the site. During the survey both
companies and farmers were asked how often extension staff visited the site. Most companies believed that
their staff visited sites at least once every two weeks however these claims were often not confirmed by
farmers at the schemes (Table 3). Cotton, paprika and seed companies generally provided low levels of
extension support, whilst the tobacco and vegetable sectors provided a moderate level of support.
Box 6
Extension support in the Union Project
The Union Project uses a ‘directed farming’ approach which places a heavy emphasis on extension support.
Extension officers living at the sites advise and mentor groups of about 50 farmers. These resident officers
report to agricultural consultants who each oversee production at about five sites (i.e. 250 farmers). Farmers
receive full input support and are taught conservation farming techniques and good agricultural practices. The
approach makes use of demonstration plots where farmers gather once a week for training.
Extension support in the Agriseeds Project
In its recent contract scheme Agriseeds provides intensive extension to 2200 farmers. Agricultural
extensionists are overseeing activities of 100 farmers each, and 5 extensionists are supervised by an
agronomist. Farmers are grouped in groups of 10 with a chosen lead farmer. The lead farmer is motivating
peer learning, mutual farm visits and group performance. Agronomic skills for seed production, timely
implementation of operations are important elements farmers have to master. In addition an independent
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training organisation is providing farmers with business skills such as understanding of contracts, record
keeping and cost/benefit calculations.
3.3.8. Production support
Another important advantage of contract farming for farmers is that companies often provide services. Such
services might include land preparation, maintenance of an irrigation pump, input support (seed, fertilizers,
crop chemicals and packaging materials) and cash advances. This support was normally extended to farmers
as credit to be repaid when the crop was delivered.
The input support provided by companies ranged from minimal to full input support packages. The highest
level of support was at Mkwasine where farmers had access to all services and inputs required to grow a high
yielding cane crop. The level of support at the estate was unique among the companies in that it would even
carry out soil testing and liming at the request of the farmer. The tobacco industry also supplied farmers with a
high level of input support that included cash advances during times of peak labour requirement. Ostrindo
supplied its outgrowers with all of the feed, vaccines and chemicals necessary to successfully rear the ostriches
and chickens.
Generally the cotton and vegetable industries provided farmers with a supplementary level of input support.
Some of the cotton companies recognised trustworthy and productive individual farmers who were supplied a
greater level of support. For example, Cottco farmers were credit rated and better farmers received greater
support.
In most cases, companies contracting farmers to grow legume crops, paprika, seed crops and sorghum
provided little more than seed. The extension support offered by these companies was also low.
Companies providing full input support generally had more intensive extension services. Mkwasine and
Ostrindo had extension workers permanently present at the site. Tobacco company agronomists were given
responsibility for a relatively small number of farmers and were able to give growers individual treatment. On
the contrary, when company input provision was low, companies tended to make smaller investments in
extension staff.
The cotton industry might have been expected to place a greater investment in extension considering the very
large investment that companies made in terms of input credit schemes. However, investment in extension
was low with officer: farmer ratios varying from about 1:500 to in excess of 1:1,000.
Table 3: Input credit and extension support schemes
Crop type Company name Ext. Support1
Production support2
Level of production support3
Input delivery4
Repayment terms5
Credit facility6
Cargill Low 2, 3, 4, 5 1 1 5 Cotton
Cottco Low 2, 3, 4, 5 1, 2 1 5
Cotton Seed
Quton Low 2, 3, 4, 5 1 1 5
GMB Low 2, 3 1 3
Olivine Low 2 1 1 6
Legume crops
Reapers Nil 2, 3 1 1 3
Ostriches Ostrindo High 7, 8, 9 2 1 4
Cairns Spices Low 2 3 1 1
Capsicum Low 2, 5 3 1 7
CTE Nil 2 3 1
Paprika
Hy-veld Low 2 3 1 4, 7
AgriSeeds Med 2, 5 3 1 6
ARDA Seeds Low 2, 4 1 1 3
Seed crops
SeedCo Low 2 1 1 7
Sorghum Delta Low 2 3 1 3
Sugar cane
Mkwasine High 1, 2, 3, 4, 5 2 1 3
Northern Tobacco
Med 2, 3, 4, 5, 6 2 1 3
Tribac Med 1, 2, 3, 4, 5, 6
2 1 3
Tobacco
ZLT Med 2, 3, 4, 5, 6 2 1 2
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Cairns Low 2, 3, 4, 5 1 1 3 1
Favco Nil Nil 4 N/A N/A
Honeywood Med 2, 3, 4 1 1
Selby Ent. Med 2, 3, 4, 5 2 1 4
TZI High 2, 3, 4, 5 2 1 1
Vegetables and/or fruit
Wholesale Fruiterers
Nil Nil 4 N/A N/A
1 Company extension support: could be described as low (one visit per month or less), med (visit every fortnight) or
high (weekly visits or permanent extension presence) 2 Production support availed to farmers by contracting companies might have included land preparation (1) and
provision of seed (2), fertilizers (3), crop chemicals (4), packaging materials (5) and cash advances (6). Ostrindo
supplied Ostrich outgrowers with chicks (7), feed (8) and vaccines and chemicals (9). 3 Tillage services and seed supply were usually sufficient for the contracted area. Remaining production support could
be designed to supplement the farmer’s own resources (1) or to provide for most of the farmer’s needs (2). Some
companies did not provide any inputs other than seed (3) whilst others did not have an input credit scheme (4) 4 All companies providing material input support delivered the inputs to a central location or to the homestead 5 The companies interviewed used various methods to calculate input repayment. One company did not require
repayment (1). Another charged cost with no interest (2). Others used a principal plus simple interest model (3).
Some companies opted to charge farmers replacement cost at the time of delivery of produce (4). Some companies
instructed farmers to repay loans with an equivalent amount of produce (5). Companies supplying seed would often
direct farmers to replace the same amount of seed from their harvest (6) or forgo repayment if the farmer delivered
the crop (7). 6 Some companies arranged credit facilities through commercial banks for their farmers (1)
3.3.9. Input loan repayment terms
Loan repayment conditions offered by the company have a great influence on the sustainability of the
revolving inputs programme and on relationships with the farmers. Under the hyperinflationary environment it
was critical that companies were able to replace the inputs supplied to farmers in order to sustain their
programmes. However, it was also important that farmers were advised on input cost calculations to avoid the
common perception that companies were profiting from these programmes. The following repayment
conditions were identified (see Table 3)
• Free inputs – TZI, with the support of donor funds, provided Cashel farmers with free inputs in the first
year of the export vegetable production scheme. Farmers were only required to pay seed costs and a
subsidised transport charge. Farmers were informed that, in subsequent years, they would be required to
pay replacement costs for all inputs, transport costs (for ferrying produce to the Marondera pack-house)
and related handling fees;
• Principal only – tobacco processing company ZLT provided farmers with their inputs at cost price payable
at the end of the season;
• Principal plus simple interest – some companies received government subsidised agricultural (ASPEF)
loans and charged farmers the subsidised interest rate. However, this low interest rate did not enable
(under hyperinflationary conditions) companies to repurchase inputs in the following year;
• Replacement cost – when farmers were charged the replacement value of their inputs at time of harvest, it
allowed companies to replace inputs for the following season’s programme. The problem with this method
was that it was not possible to provide farmers with pre-planting input prices;
• Repayment in produce – some companies instructed farmers to repay their input loans in an equivalent
value of inputs (see Box 7);
• Repayment of seed loans – companies supplying seed to growers sometimes required repayment with an
equivalent amount of harvested seed. Other companies supplied seed at no cost on the condition that the
farmers sold a minimum quantity of produce to the company.
Box 7
The demise of the ‘cotton kg’ system of input loan repayment
The standard repayment method used by the cotton industry for much of the 2007 marketing season was based on input repayment in ‘kg’s of cotton’. At the beginning of the cotton season input prices were pegged to an equivalent value of cotton. For example, farmers were told that they should repay a 50 kg bag of compound fertilizer with 100 kg of harvested cotton. However, government price controls resulted in the official price of fertilizer being reduced to a fraction of its true value. Although fertilizer was unavailable at these low prices, farmers complained that they were being overcharged by companies. Government reacted by
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temporarily outlawing the cotton-kg system and most cotton companies suffered massive losses – one company lost 60% of the value of its credit scheme.
3.3.10. Availing credit facilities to farmers
Cairns Spices arranged for farmers to receive loans through AGRIBANK with which to make their input
purchases. However, farmers complained that late loan disbursement had impacted negatively on
productivity.
4. Classification of farming models In the previous chapter information was presented on the different methods used by companies to contract smallholder farmers. Generally, companies contracting farmers to produce the same product used similar contracting methodology. Eaton and Shepherd (2001) classify contract farming into five models depending on the product, the resources of the company and the required intensity of the relationship between the farmer and company.
4.1. Model descriptions
4.1.1. Centralised model
In this model the company is usually a centralized processor (or packer) that requires produce to feed through a processing procedure. Processing may vary in complexity from simple operations (cooling, grading, sorting and packaging operations) to sophisticated procedures (processing of tea, vegetable freezing and canning). Crops that fit into this model may include tree crops (e.g. coffee and tea), annual crops (e.g. vegetables, cotton, tobacco and sugar cane) or livestock products (poultry or dairy). Produce may be purchased from a large number of farmers. As a result of the processing requirements these operations are usually vertically coordinated with stringent quota allocation and quality control. A directed farming approach is often used in these projects – directed farming occurs when smallholder farmers are managed or organised and requires a high level of management in the farmer’s production. Company sponsorship varies from minimal input provision (e.g. seed) to the
opposite extreme (land preparation, seedlings, fertilizers, agrochemicals etc.) where the company takes control of most production aspects.
4.1.2. Nucleus estate model
This is a variation of the centralised model in which the company is represented locally through a central estate or plantation. This model was first developed by the Commonwealth Development Corporation (CDC) which established pilot estates before contracting outgrowers some years later to feed into the central processing plant. The central estate is usually used to guarantee throughput for the processing plant. This type of contract also involves directed farming – since the core estate is usually in close proximity to the contracted farmers it often provides significant of material and management resources. The contracted farmers therefore benefit from the central estate’s economies of scale. In many countries of the world this model is used with resettlement schemes.
4.1.3. Multipartite model
This multipartite model is used when more than one organisation collaborates in the farmer contract. Separate organisations may be responsible for credit provision, production, management, processing and/or marketing. Multipartite models can develop from the centralised or nucleus estate models.
4.1.4. Informal model
Small companies or individuals wanting to make simple, informal production contracts with farmers on a seasonal basis usually use this model. The model is therefore more common for short season crops such as fresh vegetables for wholesalers or supermarkets. The crops generally require a minimal amount of processing. These contracts do not usually involve directed farming and financial investment is minimal because individual promoters do not have large financial resources. Material inputs are restricted to provision of seeds and basic fertilizers. Technical advice is restricted to grading and quality control and developers often rely on government support services such as extension.
4.1.5. Intermediary model Companies that do not want direct contact with the farmers may choose to subcontract production to an intermediary party. There are no examples of this type of contract in the companies surveyed. In this type of setup there is a danger that the company may lose partial (e.g. prices paid to farmers) or entire control of production.
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Table 4: Current and proposed classification of companies into contracting models
Product Company name Current Model ‘Best fit’ Model
Cargill Informal/centralised Centralised Cotton
Cottco Informal/centralised Centralised
Cotton Seed Quton Informal/centralised Centralised
GMB Informal Centralised
Olivine Informal Centralised
Legume crops
Reapers Informal Centralised
Ostriches and chickens Ostrindo Multipartite Multipartite
Cairns Spices Informal/centralised (Multipartite)
Centralised
Capsicum Informal Centralised
CTE Informal Centralised
Paprika
Hy-veld Informal Centralised
AgriSeeds Informal Centralised
ARDA Seeds Informal Centralised
Seed crops
SeedCo Informal Centralised
Sorghum Delta Informal Centralised
Sugar cane Mkwasine Nucleus Estate Nucleus Estate
Northern Tobacco Informal/centralised Centralised
Tribac Multipartite Multipartite
Tobacco
ZLT Informal/centralised Centralised
Cairns Foods Informal/centralised (Multipartite)
Centralised
Favco Informal Informal
Honeywood Informal/centralised Centralised
Wholesale Fruiterers Informal Informal
Selby Enterprises Informal/centralised Centralised
Vegetables and/or fruit
TZI Centralised Centralised 1 Centralised model is used when a processing company gives farmers production quotas and requires high quality
standards. This model uses directed contract farming. The Nucleus Estate model is a variation of the Centralised
model and is used when the company is an estate that is contracting satellite outgrowers. The multipartite model
refers to contracts where more than one organisation is mandated to fill a certain function. The informal model
describes companies who make low investments in the farmers, do not require quotas and have minimal quality
standards
4.2. Recommended models for surveyed companies
In this section the above descriptions (developed by Eaton and Shepherd, 2001) are used to classify each
company according to the model that they were currently using. In some cases the model being used was
inappropriate and did not maximise returns to the company and/or farmer. In such cases recommendations
are offered on the model that might prove to be a better fit (Table 4).
4.2.1. Centralised model
None of the companies listed in Table 4 receive sufficient produce to satisfy the demand of their operations.
Many of these companies using the informal model would likely have had greater success if they had used the
centralised model. The informal model is ideal for small companies or individuals with limited resources;
companies that do not operate processing equipment and therefore don’t require strict quotas or high quality
specifications. However, many of the industries have considerable investments tied up in processing
equipment.
TZI’s export vegetable contract growing scheme at Cashel started in 2006 and the company had an intensive
input and extension support programme involving its resident officers and AGRITEX staff. The company
processed and exported the vegetables to South African and other international markets. The site was well
managed and the company was one of the few examples of a company using directed farming under the
centralised system.
Many companies were at this time using a hybrid of the centralised and informal models. Most of the tobacco,
export vegetable and cotton companies in Table 4 are classified under a hybrid arrangement.
• Tobacco and export vegetable industries generally provided farmers with full input and moderate
extension support;
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• Cotton and local vegetable processing industries had supplementary input support programmes and
relatively small extension services (see Table 3).
Where companies have significant investments tied up in processing equipment they should consider the
centralised model.
Cotton is only internationally marketable once it has been processed into lint at a cotton gin. In 2007, over 20
marketing companies contracted in excess of 200,000 smallholder farmers. Most companies did not receive
sufficient volumes of cotton to meet with their ginning capacity and low yields and deteriorating quality
standards were a major industry concern. Companies generally used extensive extension support and farmers
received variable input subsidies depending on the individual companies. In the preceding years, the
marketing season had been characterised by rampant side-marketing which had increased the expense of
input credit schemes and resulted in companies reviewing their input support programmes. The industry had
been actively lobbying government for the introduction of a legislative framework to restore confidence and
order to the industry. It was felt likely that greater investments would be made into smallholder contract
farming if companies had more confidence in the system. Thus, although the centralised model would be
optimal, it was unlikely that companies would increase investments until the relevant legislation was
implemented.
In contrast to the cotton industry, the tobacco industry contracted less than 5,000 smallholder farmers in
2007. The tobacco companies interviewed gave their farmers full input credit and farmers had regular (but not
intensive) access to extension support. Tobacco yields were lower than their commercial farming counterparts.
One of the interviewed companies expressed doubt as to whether smallholder operations were sustainable and
it was thought likely that this sector was being subsidized at this time. Once again, a greater commitment to
directed farming would likely bear fruit.
Cairns and Honeywood had processing facilities that required continual produce throughput. Both companies
provided farmers with supplementary input and limited extension support. Farmers produced low yields and
side-marketing was a perennial problem. As in the case of the cotton industry, it was likely that the increased
extension support characteristic of the centralised model would assist farmers in producing higher yields and
would reduce the incidence of side-marketing.
Selby Enterprises exported vegetables and required higher quality standards than the local industry. The
company provided farmers with full input support and the company agronomist was visiting the scheme
fortnightly. Selby’s relationship with Negomo farmers started in the mid 1990’s and the company noted that
productivity had declined over the years. The company philosophy was that, after so many years, the farmers
should have the responsibility of managing their own production. However, declining productivity would
indicate that a more intensive approach would benefit both company and farmers.
Seed companies required a quality product. Certified seed production must take place under well managed and
monitored conditions to ensure genetic purity. Seed quality is also dependent on growing conditions and
farmers should therefore have access to requisite inputs and advice. Side-harvesting describes the practice
when farmers sell non-contracted produce to the company, usually in order to benefit from higher prices. This
problem was a serious concern to the seed industry which jeopardised seed purity. It is only possible to
prevent side-harvesting through a well managed and monitored programme. Seed companies would therefore
have benefited by adopting a centralised approach.
Another industry that would likely have benefited from the centralised approach was the paprika industry.
Paprika is a high value product that is exported to international markets requiring a quality product. The
paprika marketing companies all cited low yields by smallholder farmers as being a major problem. This crop is
also susceptible to side-marketing. Increased company management and extension support under the
centralised system would likely have improved this situation.
Delta Corporation processed smallholder sorghum into traditional beer. Despite having developed a large
grower base of over 4,000 farmers, the company still needed to import half of its sorghum requirements due
to low farmer productivity. The company was using an informal model in which farmers were provided with
seed loans and limited extension support. Both the company and its farmers would likely have benefited from
using the centralised model.
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4.2.2. Nucleus Estate Model
The only company interviewed that was using the Nucleus Estate Model was Mkwasine Sugar Estate situated in
the Lowveld. Chipiwa resettlement scheme at Mkwasine sugar estate was resettled in the early 1980’s. The
Zimbabwe Government sold the land to a consortium comprising Triangle and Hippo Valley sugar estates on
condition that 40% of the land was made available for resettlement purposes.
The company built significant infrastructure for the resettled farmers that included sewerage facilities, piped
drinking water, a road network, medical and sports facilities, housing and schools (Eaton and Shepherd,
2001). Prior to 2007, the company had provided smallholder farmers with full extension and input support,
however the level of material support was deteriorating because the core estate had diminished in area and
become increasingly unviable due to the government’s FTLRP. Irrigation water supply had also become a
problem – the FTLRP was implemented at a time when the company was converting the irrigation system and
many farmers were left stranded without water because the company could no longer afford the costs.
Another company operating under the Nucleus Estate model was Eastern Highlands Plantations Limited which
was contracting about 1,000 smallholder farmers to produce tea and coffee for its processing facility.
4.2.3. Multipartite model
There were a number of examples of the multipartite model in which the contracting company was assisted by
a third organisation. Khula Sizwe Trust provided training and capacity building support to Ostrindo’s ostrich
farmers. The Zimbabwe Tobacco Association provided Tribak farmers with logistic, management and extension
support. The Union Project provided companies with a lower-risk entry point into directed contract farming
through provision of subsidised extension and input support. The multipartite model was generally successful.
Cairns Foods and Cairns Spices used an informal multipartite model through their relationship with financial
institutions. Loans were given to the farmers and repayment was guaranteed by the company.
4.2.4. Informal model
FAVCO and Wholesale Fruiterers are examples of companies that were correctly using the informal model. The
two vegetable wholesalers were providing planting programmes to smallholder farmers who received no input
and little extension support.
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Table 5: Farmer productivity and agronomic practices1
Crop type Company name Main crop2 Potential yield3
(kg/ha) Average
farmer yield4 (kg/ha)
Farmer yield as a fraction of potential
yield5
Site yield
(kg/ha) Reasons for yield
difference4
Period of planting at site5
Soil testing
Liming
Cargill Cotton 2,000 700-800 38% 380-800 1, 6, 9, 12 3 Never Never Cotton
Cottco Cotton 2,500 700 28% 500-2,000 1, 3 3 2006 Never
Cotton Seed Quton Cotton 2,000 500-900 35% 1, 3, 7
GMB 3, 5, 9, 11
Olivine Navy beans 2,000 500 25% 100-2,000 1, 2 3 Never Never
Legume crops
Reapers Groundnuts 2,500 1,500 60% 400-1,500 1, 3, 5 3 2004 Never
Ostriches Ostrindo Ostriches 18, 19, 20
Cairns Spices Paprika 2,500-3,000 300-900 20% 100-1,000 1, 4, 6 2 Never Never
Capsicum Paprika 2,000 (D) 500-1,000 (D)
38% 1, 2, 4
CTE Paprika 5,000 1,000 20% 1, 3, 4
Paprika
Hy-veld Paprika 1,000-2,000 (D) 3,000-6,000 (I)
600-800 (D) 1,000-3,000 (I)
35% 44%
4, 7, 8, 10
AgriSeeds Cowpeas 1,500 700 47% 102-700 1, 2, 13 3 1997? Never
ARDA Seeds 1, 5
Seed crops
SeedCo Cow peas 1,000 300-500 40% 1,2, 6, 14
Sorghum Delta Sorghum 3,000-4,000 1,000 29% 400-1,000 3 Never Never
Sugar cane Mkwasine Sugar cane 115,000 85,000 74% 30,000-120,000
2 2 2007 2007
Northern Tobacco Tobacco 2,300 1,000 43% 2, 7, 15
Tribac Tobacco 2,400 1,600 67% 2, 15
Tobacco
ZLT Tobacco 2,200 1,300 59% 1,000-1,600 2, 4, 16 1 2003 Never
Cairns Hybrid tomatoes
75,000 28,000 37% 2,500-25,000 1, 2,5 1 2005 2006
Favco Butternut 30,000 25,000 83% 1, 3, 8
Honeywood Tomatoes 35,000 25,000-50,000
1, 3, 17 3 Never 2002
Selby Ent. Baby corn 1,200 600 50% 2, 3
TZI Mange Tout 4,000 3,000 75% 2, 10
Vegetables and/or fruit
Wholesale Fruiterers
Tomatoes 8
1 Information for columns labelled ‘Potential yield’, ‘Average farmer yield’ and ‘Reasons for difference’ was provided by companies. The remaining information was recorded during farmer interviews 2 Navy beans are also known as Michigan Pea Beans 3 Commercial companies were asked for potential crop yields under large-scale production. D=dry-land and I = Irrigated 4 Commercial companies were asked for average crop yields from smallholder farmers 5 When a range of crop yields was quoted the percentage calculation was done using an average
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6 According to companies reasons for poorer crop yields from smallholder farmers include insufficient application of inputs (1), poor management (2), inadequate pest and disease control (3), lack of irrigation (4), low rainfall (5), late planting (6), poor timing of operations (7), inadequate knowledge (8), poor cultivation (9), labour shortages (10), use of retained seed (11), low plant populations (12), poor soils (13), post-harvest losses (14), inadequate farming equipment and infrastructure (15), poor land preparation (16) and electricity cuts at irrigation schemes (17). Smallholder farmers for Ostrindo excel because of a sense of ownership and personal care (18), good bio-
security (19) and small groups of birds (20) 7 According to farmer information, sowing or planting was done over a period of 14 days (1), 28 days (2) or greater than a month (3)
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5. Factors reducing the success of contract farming
ventures In 2007, after many years of low productivity, Olivine Industries decided to discontinue their smallholder
contract farming scheme. It is important to analyse lessons learnt by the different actors in order to prevent
the recurrence of such failures.
5.1. Productivity
Table 5 summarises productivity and agronomic information obtained during interviews with both companies
and farmers and provides some insight into the practical challenges to successful contract implementation.
About 60% of the companies interviewed estimated that smallholder farmers produce less than 50% of the
yield of their large-scale commercial counterparts. Ostrich outgrowing was the only example of an industry
where smallholders outperformed large-scale producers (see Box 8).
Farmers were producing less that 50% of the yield potential for cotton, navy beans, paprika, cowpeas,
sorghum and tomatoes. Crops that were grown more successfully included baby corn, groundnuts, sugar cane,
tobacco, butternut and mange tout. It should be noted that success or failure illustrated in the table does not
necessarily reflect the suitability of the crop for smallholder production since the contracting methodology and
model described in earlier chapters are also of great importance. As previously discussed, companies
contracting farmers to grow the same crops often used similar contracting methodology and were therefore
likely to experience the same problems and attain similar results.
Farmers at each of the sites were asked to estimate the lowest and highest yields produced by farmers in their
grower groups. The information recorded in Table 5 shows that the company estimates were sometimes higher
than actual productivity at the site. It should be noted that the yield values reflected the situation at a single
site and were not necessarily a true representation of the company’s entire smallholder production base. For
example, the Cottco community in Mutoko is known to be one of the company’s more productive sites.
Box 8
Ostrich rearing – a smallholder farmer success story
One of the secrets of Ostrindo’s success was that individual smallholder farmers were raising small and
isolated groups of poultry. In contrast, commercial operations reared large groups of birds with no individual
attention. The birds thrived under individual attention given by smallholder producers and the small, isolated
groups were found to restrict the spread of disease outbreaks. Smallholder production indicators such as
mortality, feed conversion and growth rate were all superior to commercial systems and production costs were
lowered by between 10-20%.
According to Khula Sizwe Trust (KST) other factors that contributed to the success of this venture included
• Product selection – Ostriches and chickens are easily counted. Ostriches are not easily side-marketed;
• The individual contracting system – allowing individual ownership and reward for excellence;
• Intensive extension – a resident company extension worker who mentored and monitored farmers;
• Training – before and throughout the contract period;
• Mediation – KST was the mediator between Ostrindo, farmers and local authorities.
Note: Due to stockfeed shortages in 2008 the scheme suffered considerably but is being rebuild
5.1.1. Reasons for low productivity
Companies were asked to list the main reasons for the relatively poor performance of smallholder producers.
The extensive list of reasons given in Table 5 can be summarised under three main headings: resource
limitations, poor agricultural management and lateness of operations.
Many companies that provided farmers with a supplementary level of input support (Table 3) believed that the
key to improving yields was increased input availability. Conversely, companies that provided farmers with full
input support believed that the cause was related to poor agricultural management and time-keeping.
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5.1.1.1. Resource limitations
In addition to input support, companies cited low rainfall and lack of irrigation, labour shortage, poor soils,
post-harvest losses, inadequate access to farming implements and infrastructure, poor land preparation and
intermittent electricity supply as reasons for low yields.
Maximising yields are only possibly if crop growth is unchecked by water shortage. All the paprika companies
stressed the importance of irrigation on maximising productivity. Companies sponsoring farmers at irrigation
schemes cited the unreliability and unavailability of electricity as a major reason for low productivity. However
even if water is continually available, failure to irrigate correctly can also be disastrous – one of
underperforming sites was an irrigation scheme where navy beans were grown for Olivine Industries. Some of
the farmers use drip irrigation at this scheme which is predominantly irrigated using hand-move sprinklers.
Drip irrigation farmers were attempting to produce crops using the same irrigation schedule as their overhead
counterparts, with poor results.
Shortage of agricultural labour was a nationwide problem for both commercial and smallholder farmers and
was related to the economic instability in the country. Farmers at Mkwasine Sugar Estate complained about
severe labour shortages. The traditional labour pool had dried up as people sought better livelihoods in
Mozambique or in informal trading and mining operations. The tobacco companies were unique in that they
provided farmers with funds to pay labour at certain times in the crop cycle.
Many of the soils in Zimbabwe’s smallholder areas are mono-cropped and ploughed annually. These soils are
low in organic matter and have low fertility. Significantly, none of the companies interviewed mentioned soil
acidity as a reason for low productivity. Continued use of acidifying fertilizers (e.g. ammonium nitrate) has
decreased soil pH to below optimal levels. Most crops grow well when the soil pH range is between 5.0 and
6.0. Soil fertility decreases progressively with increasing soil acidity and many nutrients (e.g. calcium,
magnesium, phosphates) become unavailable for uptake by plants. In acid soils there is also a danger that
aluminium and manganese will become available in toxic amounts. Microbial activity is suppressed by high
levels of these toxic elements, reducing the yield potential of legume crops. Groundnuts require soils with
higher pH values because they use large amounts of calcium. Farmers at most sites had never had their soils
tested or limed.
Lack of tractors and farming implements can delay land preparation. Late planting has dramatic effects on crop
yields. In many areas of Zimbabwe the optimal planting date for dry-land farmers is with the first summer
rains which occur between mid and late-November. Potential crop yields diminish with continued delays after
this date. Farmers at the sites were asked when the first and last farmer in the group planted his plot (Table
5). At most of the sites there was a delay in over a month between the first farmer planting and the last; such
delays would undoubtedly have resulted in yield reduction.
Planting at the correct time is especially important for farmers contracted to grow horticultural produce. In
order to ensure a constant supply of produce for processing, many horticultural companies provided farmers
with planting programmes. When farmers missed their planting deadlines their crops were ready for harvest at
a different time to their neighbours. This resulted in reduced deliveries to the company during the planned
harvesting period. Since it was not viable for the company to collect a small amount of produce from a few
farmers producing crops outside the scheduled period the defaulting farmers stood to lose their contract
market.
Lack of appropriate storage facilities can result in post-harvest losses due to crop deterioration and theft. For
example, once it has been cured, tobacco needs to be stored for up to six months before being sold at the
auction. According to the ZTA, smallholder farmers experienced great losses during this period.
Box 9
Conservation farming empowers smallholder farmers by enabling them to plant on time
Conservation farming is an agricultural system aimed at improving soil organic matter content by
• Discontinuing destructive soil preparation techniques that invert the soil. Ploughing inverts the fertile top
soil, exposing it to the atmosphere and organic matter is oxidised. Organic matter plays an important role
in increasing soil structure, fertility and water retention.
• Encouraging practices that leave mulch on the soil surface. Mulch is important in protecting the soil from
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excessive heating by the sun and raindrop impact. Rainfall on unprotected soil can result in significant
erosion.
Conservation farming has another great advantage. Many smallholder farmers are unable to plant at the
correct time because of a lack of draft power. Smallholder farmers who own cattle will often start ploughing
after the first rains. However many communal farmers do not own draft power and have to wait until hired or
borrowed cattle are available. Farmers using conservation farming do not plough. They mark out planting
stations with hoes well before the rains and are ready to plant the moment the rains arrive.
5.1.1.2. Poor management
Low standards of agricultural management can significantly reduce yields. Management related issues that
companies have found to be problematic include plant populations, disease control, cultivation and use of
retained seed.
Achieving the correct plant population is the first step in obtaining the full yield potential of a crop. Many
smallholder farmers did not use methods that ensured that the correct amount of seed was sown.
Poor pest and disease control can result from a number of reasons including lack of crop chemicals and
spraying equipment or incorrect application procedures. The vast majority of farmers used knapsack sprayers
incorrectly and the potential results included waste of costly crop chemicals, poor pest control, plant injury and
high levels of chemical residues on the harvested crop.
When farmers do not cultivate their fields, subsequent weed growth results in competition for nutrients which
seriously jeopardises yields.
Some companies cited use of retained seed as a yield reducing practice. However, this should not have been a
major problem in contract farming because seed is usually supplied by the company.
5.1.1.3. Lateness of operations
The importance of planting date has already been mentioned. In many cases, the causes of late farming
operations were related to the poor management factors mentioned above. For example, it is not only
important to cultivate well but also to weed at the right time so that weeds do not get too big. Crops need to
be sprayed with chemicals early at the right time in order that pest populations do not exceed critical levels.
This requires regular scouting activities to determine insect and disease levels in the crop. There are also crop
specific operations that must be done at the right time – for example in tobacco production de-suckering is an
important operation which, if not done on time, will seriously reduce yields.
5.1.1.4. Over-reliance on input credit schemes
Over-reliance on input credit can result in farmers expecting the contracting company to cater for every
eventuality. This can be dangerous, for example, in the event that a disease outbreak threatens the crop.
Over-reliant farmers may wait for the contracting company to provide them with the chemicals rather than
taking appropriate action themselves.
5.2. Contract default
During interviews, both farmers and companies were questioned on common forms of contract default.
5.2.1. Farmer default
5.2.1.1. Extra-contractual marketing
5.2.1.1.1. Side-marketing
Side-marketing describes the practice when a contracted farmer sells his produce to a third party in breach of
his contractual agreement. It is a major problem in Zimbabwe – 60% of the companies that were interviewed
stated that their contracted farmers had side-marketed harvested produce. Side-marketing results in reduced
quota delivery to the company, decreased processing efficiency and increased production costs.
Both companies and farmers were asked to give reasons for side-marketing. The reasons given in Figure 1 are
often interrelated. Both partners agreed that the main reason was related to price– farmers were tempted to
sell outside the contract agreement when competitors offered more money than the contracting company. In
cases where the difference was very significant farmers felt justified in their actions because they believed that
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the company was profiteering. Capsicum, a paprika marketing company, encouraged farmers to notify them
when competitors were offering higher prices so that they could renegotiate prices.
Figure 1. Reasons given by companies and farmers for side-marketing
Delays in collection of non-perishable crops often resulted in farmers selling to a third party. By harvest time
many farmers had not had access to income for a long period. If the company did not collect the crop soon
after harvest farmers were tempted to sell to middlemen who are commonplace during the marketing season.
Side-marketing was more likely when the farmer had an urgent requirement for money.
A history of late payment resulted in side-marketing by farmers at Hama Mavhaire irrigation scheme. Olivine
paid farmers by cheque after collecting the produce. Farmers anticipated long payment delays and made
partial deliveries to company trucks sent to collect produce. The remainder of the crop was then sold locally or
at the farm gate to assist cash flows until the arrival of company payments (see Box 10).
Low yields are a major motivation for side-marketing. Farmers with very low yields are unable to repay their
input loans and when faced with the prospect of indebtedness they will often choose to sell the crop elsewhere.
Low yields also result in farmers becoming dissatisfied with the contract price. Prices calculated to give farmers
with higher yields a reasonable return, seem unreasonable to unproductive farmers. It is in the company’s best
interests to do all that is possible to assist farmers to achieve high yields.
Cotton companies reported that farmers wishing to avoid input loan repayments will often resort to side-
marketing. Such farmers would sell their produce to a third party and claim crop failure. Another motivation
for side-marketing is greed. By claiming crop failure and side-marketing the produce to better paying markets
farmers could maximise their income.
Box 10
Side-marketing due to poor yields and payment delays
Missed navy bean quotas at irrigation schemes were the main reason that Olivine Industries discontinued
contract farming with smallholder farmers in 2006/07. Although the primary reason for low yields was poor
agricultural management, side-marketing probably exacerbated the situation. Farmers at Hama Mavhaire
complained that Olivine was well known for delayed payments. They also complained that the company paid
low prices. Some farmers at the scheme would not deliver all of their beans to company trucks sent to collect
the produce. Beans would be sold in the local community to tide farmers over until the arrival of company
cheques.
When horticultural farmers missed the company planting programme they harvested at a different time to
their more organised neighbours. It is unviable for company trucks to travel long distances to collect small
amounts of produce and these farmers would therefore sell their produce to alternative markets.
All of the companies interviewed expected their employees to explain contract agreements to farmers.
However nearly 40% of farmers either said they did not understand the agreements, or clearly did not
understand when asked about specific details. Whether the problem is that farmers genuinely do not
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understand contract agreements, or else it is because they do not appreciate the repercussions of their
actions, the solution will likely lay in training and enforcement through appropriate legislation.
Farmers were more likely to side-market when a history of discontent with the contracting company made
them feel justified for their actions.
Table 6 lists some of the solutions for the specific causes of side-marketing listed in Figure 1. However there
are many other factors that can reduce this malpractice including
• Empowering farmer communities with constitutions and by-laws which address contract default;
• Monitoring farmer agricultural performance closely to assist in the achievement of good yields and
quality (i.e. directed farming). Close monitoring and record keeping of crop yields at individual plots;
• Contracting individuals to ensure liability and accountability;
• Rewarding individual excellence. This might be done through increased input support or increased
producer prices when yields reach certain thresholds;
• Field days and competitions;
• Continual strengthening of relationships with the community by taking into consideration their needs.
For example, when farmers told Capsicum that inputs were in short supply, the company agreed to
barter with farmers and pay for produce with an equivalent value of inputs. Companies that invest in
local communities were more likely to command the respect and support of the community.
5.2.1.1.2. Side-harvesting
This occurs when contracted farmers collude with neighbours and friends to sell non-contracted produce to the
company in order to benefit from higher prices. This is a major problem in the seed industry where farmers are
awarded a premium price compared to commodity prices. Side-harvesting compromises the genetic purity of
the harvested seed.
Table 6: Side-marketing: Causes and solutions
Cause Solution
Low prices • Continual reassessment of pricing formulae to ensure that reasonably
productive farmers receive payments at least equal to costs of production plus a
small profit
• Share the pricing formula with farmers
• The company should be aware of local and farm-gate prices being offered to
farmers during the season
• Increase in yields will increase returns to farmers (see below)
Late crop collection • Advance logistical planning to ensure harvest is collected on time
• Good communication and coordination between farmers and the company
Late payment • Advance planning to ensure funds are available at harvest time
Low yields • Continual process of removing non productive farmers
• Increased company extension support and consider resident extension officers
• Increased monitoring and crop assessments
• Increased company input scheme
Avoidance of loan
repayments
• Ensure input pricing calculations are well understood
• Blacklist farmers who are not amenable to debt rescheduling
• Start industry database of contract defaulters
Uncoordinated planting
programme
• Increase company extension and monitoring
Ignorance of contract • Explain contract to farmers
• Ensure that farmers have their own copies of the contract agreement
• Contract individual farmers
• Train farmers on sanctity of contracts
5.2.1.2. Domestic consumption
Farmers will often keep part of the contracted crop to eat at home or for planting in the following year. SeedCo
reported that, during years of drought, cowpea deliveries were very low in Zaka because other crops had
failed.
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5.2.1.3. Input diversion
When companies supply inputs to farmers it is for the purpose of maximising yield and quality of the
contracted crop. Input diversion occurs when these inputs are not applied to the contracted crop. Instead they
may be sold or used on other crops. At one of the sites farmers reported that instances had occurred when
neighbours had signed a contract with no intention of growing the contracted crop.
Input diversion can be minimised by increasing management and extension support. For example, the ZTA
would only approve the next tranche of input distributions once farmer fields had been assessed. In some
cases the input pack would be reduced to match the actual crop area.
Box 11
The Union Project approach to reducing input diversion
The programme encouraged group work for certain farming activities including input application. Groups of 10-
15 farmers worked together in activities such as holing out, sowing/planting and fertilization. Each farmer was
instructed to have his inputs ready at the edge of the field for group application. This self-monitoring approach
helped reduce the amount of input diversion.
5.2.1.4. Negligence
Negligence can also occur because of illness, poor rains or labour shortage. Companies with good management
and extension support might have backup plans to assist farmers if they are unable to manage crops due to
illness or labour shortages.
5.2.1.5. Loan default
Loan default occurs when farmers are unable to repay their loans (e.g. due to poor yields) or because they are
unwilling to repay their loans (e.g. due to greed). Most companies appreciated that farmers will have bad
seasons and had systems that enabled genuine farmers to carry over debts into the next season.
Many of the solutions suggested for reducing side-marketing are also applicable to decreasing loan default, for
example, seasonal grower assessment and selection and training and empowerment of grower groups (peer
pressure). Loan default may also be reduced if companies make
• Timely deductions
Input deductions should be made early in the marketing season. Most companies were found to
deduct the value of inputs from the first produce delivered. Other companies encouraged early loan
repayments by using low interest incentives.
• Timely contract agreements
Some companies issued contracts for the forthcoming season at the time of harvest. Therefore, only
farmers who had repaid their loans were signed on for the coming season.
5.2.1.6. Repayment of input loans in cash
Some cotton farmers tried to take advantage of the hyperinflationary environment prevalent during the 2007
marketing season by offering companies cash instead or cotton. These farmers hoped to pay companies the
prices prevailing at the time they received their inputs and sell the cotton elsewhere for higher prices.
5.2.1.7. Yield fraud
Companies reported that there had been incidences when farmers had added large stones or excessive
moisture to packaged produce.
Box 12
Footing the bill for loan default
There will always be a percentage of farmers who default and the risk that companies assume in providing
input finance needs to be factored into the model. This may be done by reducing commodity prices or
increasing input prices.
In the 2006/07 season members of the NACGMB (now the Cotton Ginners’ Association, CGA) agreed on a
national cotton price which would be based on international lint prices and the costs of the input support
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scheme. However, this industry agreement quickly collapsed because some of the companies that were not
financing production did not uphold the agreement and paid farmers higher prices.
When companies build the cost of their contract farming programmes into the cost of the inputs farmer
training is necessary to ensure that farmers understand why their inputs are expensive.
Fear of default prevents many companies from providing a full set of input support. Low risk – low return
(Table 3) contracts signed with many farmers spreads the risk and ensures that some product makes its way
back to the company. Therefore it is really the farmers who pay the price for loan default.
5.2.1.8. Default by Mkwasine farmers
The methods of default at Mkwasine were unique. Farmers were reported to have defaulted in three main
ways. Firstly, farmers did not conform to the company agronomic practices as stipulated in the contract
agreement. When farmers ignored good agricultural practices they also affected their neighbours. For
example, if diseased plants were not removed as required by the contract, it could spread into neighbouring
plots. Secondly, some farmers abused the sugar cane quota system. Cane is harvested from April to
November; however, peak sucrose content occurs between the middle and end of July. Farmers were given
equitable harvesting schedules to take this into consideration; however, some farmers abused the schedule by
burning their fields prematurely. Finally, farmers were known to use more water than their allocation.
Before moving on to company default it is necessary to pause and reflect on the many reasons why crop
deliveries to contracting companies were reduced. It is important to note that most of these factors can be
addressed when companies implement directed farming programmes under the centralised model.
5.2.2. Company default
5.2.2.1. Late or non-supply of inputs
The provision of inputs is one of the main reasons why contract farming is attractive to farmers. However,
farmers reported that inputs would often arrive late or not at all. When inputs are delivered late farmers miss
the opportunity to plant at the correct time and often obtain lower yields which compromise potential income
and the ability to repay input loans.
In the years preceding 2007, most inputs were in short supply and even the best organised companies had
had challenges in securing inputs. Failure to source and deliver inputs can make the difference between
success and failure of a farmer’s contracted crop.
Box 13
Unreliable collection of produce
Many farmers growing perishable horticultural produce at irrigation schemes in the eastern districts of
Zimbabwe tell stories of how they suffered loss because contracting companies arrived late to collect produce.
Sometimes the companies did not arrive at all.
In order to ensure top quality, horticultural produce should be systematically harvested at the correct stage of
ripeness. Farmers related how they would harvest the crop in expectation of a scheduled company collection.
When company transport was late, they would be forced to sit by the roadside watching the quality of the
harvested produce deteriorate. Produce graded at the distant factory would be allocated poor grades. Thus, it
is usually the farmer who pays for poor company logistical services.
5.2.2.2. Failure to collect produce
Another reason why farmers like contract farming is because the company collects the produce at the farm
gate. When farmers rely on the company to collect the produce it is important that the transport service is
done to a prearranged schedule. This is especially so for perishable produce which needs to be harvested and
processed within a short period of time (See Box 13).
5.2.2.3. Late payment
Companies often default by delaying payments to farmers. These delays were reported to occur due to
• Administrative delays in processing payments;
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• Product analysis to ensure conformity to company quality criteria;
• Shortages of bank notes throughout the hyperinflationary period made it difficult for companies to meet
with their contractual obligations.
Under normal economic conditions delays might only result in inconvenience to farmers. However, in a
hyperinflationary environment delays can be very costly to the farmer. Either way, late payment can be a
major source of discontent.
Chapter 6 includes recommendations of factors that companies need to consider in order to plan and
implement their contracts successfully.
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6. Recommendations Having considered the ways in which companies were contracting smallholder farmers, the discussion is
concluded with suggestions on the factors that should be considered before embarking on smallholder contract
farming schemes. In addition it is hoped that the recommendations will assist companies currently involved in
contract agreements to review their methods. If adopted, the recommendations could improve crop returns to
the companies and have the desired SCAPEMA goal of ‘increasing returns to the rural poor from more equitable
and efficient linkages with markets’.
The guidelines have been compiled using best practices identified during the course of this study with
reference to Eaton and Shepherd (2001).
6.1. Preliminary investigations
Appendix 1 is a checklist of factors that should be considered before engaging a community in contract
farming.
After completing a thorough market analysis for both primary and secondary markets the company should look
at the profitability of the venture. In order for the project to be sustainable in the long term it should be
profitable for both the company and the farmers. A sensitivity analysis will ensure that the company takes
periods of low national or international prices into consideration. Some crops are less susceptible to side-
marketing – if possible a crop should be selected that is not highly marketable. Industry organisations can give
invaluable assistance in farmer selection. For example, the NCC keeps a database of cotton growers that
enables the identification of productive and defaulting farmers.
A political assessment must also be done. The Zimbabwean government voiced its full support for contract
farming at an industry workshop focusing on contract farming (Anonymous, 2007). However, companies need
to consider political stability. Local political support is very important in Zimbabwe – there is a danger of
contract farming operations being derailed when politically connected farmers become discontented with the
company. Another possible scenario is political authorities wanting to gain popularity at the expense of the
contract agreement.
At the national level, there should be a legal framework that supports contract farming. Such a framework
does not currently exist in Zimbabwe. The cotton industry has been lobbying government to introduce
legislation to assist them with the rampant side-marketing and deteriorating cotton quality that threatens to
derail the industry. It is also important to assess the level of support from local government and traditional
leadership.
The site assessment is of critical importance because overlooking any single factor could jeopardise the
success of the programme. The general climate, soil and topography should be suitable for the attainment of
commercially viable yields. For example, frost can decimate yields of some crops. The pH at most smallholder
sites is low and the company should either consider a liming programme or the use of crops tolerant to acidic
soil conditions. If the crop is to be irrigated there should be sufficient water to meet with crop water demands
during the period of peak requirements. Water quality should not be overlooked. The site should be assessed
for any threats by disease, insects or animals – the past non-observance of crop rotations may have led to
high nematode populations. Large populations of rodents or insect species pose a potential threat to the
prospective crop. Another aspect that should be considered is the locality of farmers’ plots. Many companies
prefer farmers’ plots to be concentrated over a small geographical area for ease of management.
The creation of new groups or the assessment of existing group structures should also be carefully considered
because successful group structures can make or break the project. The local leadership should be assessed to
identify whether they have the respect and full support of the community. This can be done by interviewing
potential farmers, AGRITEX officers and other local authorities. Strong and transparent leadership will
generally result in strong groups.
The site assessment will also include an evaluation of utilities and communications. The distance of the site
from the company offices will influence the viability of the programme. Most companies interviewed deliver
inputs and collect produce from the farm gate and easy access to the scheme is therefore very important. The
survey identified one company that failed to consider the condition of the access road to an irrigation scheme.
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According to the farmers the company informed them at harvest time that they should transport their produce
to the main road. This cost was borne by farmers and resulted in discontent. The irrigation scheme should be
in good working order and there should be reliable electricity supply. Electricity supplies are unreliable in
Zimbabwe and companies often prefer to identify gravity fed irrigation systems. Access to, and reliability of
communication systems is important because management need to liaise regularly with extension staff. In
Zimbabwe, the mobile phone network can often fill the gap when fixed lines are unavailable. If processing or
packaging is to be done at the site it is important that power and clean water are available. It is important that
cropped areas are protected from animals and theft of fencing. Storage facilities for company equipment or the
harvested crop are important factors to consider. The ZTA considered post-harvest losses to be very significant
for smallholder farmers because, for the most part, they lack storage space.
Housing should also be available for the company’s extension officer. It is desirable that medical facilities are
available for access by company employees and farmers. Local schools are often able to provide support in
remote rural locations.
The conditions under which the farmer is permitted to farm on the land should be investigated. Whilst farmers
at communal or old-resettled sites have security of land tenure, the situation on A1 and A2 resettlement
schemes is still potentially unstable. Companies need to be cautious in contracting farmers on land where
security of tenure is problematic. The company also needs to assess whether there is sufficient land available
for the commercial viability of the project.
Many companies provide farmers with significant input loan support. These companies must ensure that
farmers have inputs well in advance of the season.
Social factors should also be carefully appraised before making a commitment to contract farming. The starting
point would be assessing whether the farmers have been involved in contract farming in the past and
investigating the outcomes by consulting both company and farmers. Many Zimbabwean smallholder farmers
are unfamiliar with the agricultural practices required to produce high yielding crops. Agricultural practices that
are not encouraged by commercial companies are often commonplace, e.g. inter-row cropping. Farmers need
to be consulted to determine whether they would be willing to change from their current production
techniques.
Investigations should also consider any local customs that might influence the growing of the prospective crop.
For example, members of the Apostolic Faith do not work on Fridays. Local communities often observe certain
traditions which can disrupt productivity, for example, the farmers interviewed in Zhombe communal land will
not work their lands for two days after a hail storm for fear of bad luck. Funerals can also disrupt agricultural
production because deaths can result in entire communities ceasing farming activities for periods of up to 2
days. Such disruptions can have serious effects when they occur at critical times in the cropping cycle, e.g.
during the harvesting of vegetable crops. Companies may consider training farmer groups to cover for
individuals if such events occur.
If the community has had past experience in contracting the company needs to assess whether their proposed
contracting methods are accepted by the farmers. For example, many companies prefer to use individual
contract agreements because of traceability and individual accountability. Community acceptance of individual
agreements would need to be appraised.
Farmers at irrigation schemes are required to work as a community in order to pay electricity and water
accounts, and maintain the irrigation system. An assessment should be made of past failures and the current
capacity of the community to ensure the smooth operation of the irrigation system.
An assessment of past and potential yields is important to identify whether the contract will be profitable. If
the community was contracted in the past, yield records may be available from these companies.
The potential for public, civil or non-government institutions to assist in the training of farmers should be
investigated. Two of the most successful companies interviewed during the course of the field work have
tripartite structures where a third organisation assists with managerial, logistic, record keeping, training and
extension services. It should however be stressed that such assistance can also result in failure. A company
contracting farmers to produce vegetables for processing reported that the work done by an NGO had resulted
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in poor relationships with the contracted farmers. It is recommended that references from the prospective
organisation be requested and investigated before agreeing on a multipartite programme.
The membership of the ZFU largely comprises smallholder farmers. Although inactive in many parts of the
country at the time of the survey, the ZFU could play an important role in mobilising communities to support
contract farming. The union could also play a role in reducing farmer default.
6.2. Recommendations for the drafting of contract agreements
Contract agreements should be designed to address
• The responsibilities and obligations of each party
• The manner in which the agreement can be enforced
• The remedies that can be taken if the contract breaks down
Box 14
Poor contracting methodology in Zimbabwe
Many companies interviewed complained that farmers had a poor regard for contractual obligations. There
seem to be a number of reasons for the development of this attitude. Firstly, it was found to be rare for a
company to consult with smallholder farmers when drafting a contract agreement. It was more common for
farmers to be asked to sign contracts that they had never seen. Secondly, although most company managers
stressed that their representatives explained the contract agreement to farmers there is strong evidence from
this study that many farmers did not understand parts of the documents that they signed. Thirdly, most
companies kept the only copy of the contract and the farmer had no opportunity to review the terms of
contract later in the year. The practice that seemed to have become entrenched was for farmers to ‘blindly’
sign contracts with scant regard for the contents – their primary motivation was to become eligible for input
support. There is also evidence that farmers signed contracts even if they did not agree with the specifications.
In order for a contract to be accepted by farmers it is important that they are consulted in the drafting of the
agreement. This will ensure that the wording of the specifications is in language and terms that the farmers
can comprehend. It would also be advantageous if contracts were drafted in the language that the farmers are
most familiar with. Northern Tobacco planned to draft all 2007/08 contracts in Shona to assist farmers in the
interpretation.
Ideally each contracting company should ensure that the contract document complies with the minimum legal
requirements in Zimbabwe. It is important however not to make the contract document too complex and the
contracts should preferably be short (2-3 page contracts should cover most aspects) . It is unlikely that the
contracting company will take legal action against a smallholder farmer because of a breach in contract since
the cost of the legal proceedings would far outweigh the amount being claimed. Instead it is important to
identify a way of resolving any disputes. An official from the Rural District Council, the District Administrator’s
office or AGRITEX might be asked to serve as an independent arbitrator.
The format of the agreement is the manner in which the contract is presented and usually takes one of three
forms: formal agreement, simple registration and verbal agreement (Eaton and Shepherd, 2001). A formal
agreement is a lengthy legal document that details the conditions and obligations of each of the parties. It is
mainly used when the farmers rent land from the company.
Simple registration is commonly used by companies under the centralised model and sometimes under the
informal model. The term “registration” usually refers to a signed confirmation from the farmer that he wishes
the company to reserve a contract for him. Registration is often based on trust and bypasses formal legalities.
Eaton and Shepherd (2001) recommend that this contract format is a proven and practical way to sustain
contractual arrangements. Registration of farmers is usually done immediately after the last harvest. This type
of format is common in the cotton industry with one major difference; cotton companies usually include much
detail on legal clauses.
Finally, a verbal agreement is commonly used by companies using the informal model. Such agreements are
liable to misinterpretation and are generally not recommended.
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6.3. Recommendations for contract specifications
Before moving on to the actual specifications it is important to briefly overview group structures and contract
signing. Most of the companies interviewed insisted that their farmers should work in grower groups. There are
many advantages when farmers are organised into groups including maintenance of infrastructure and roads,
ease of logistical support and extension advice. However, signing a contract with a group has its own
problems. When contracts are signed with group leadership, the leadership assumes responsibility that
individual farmers will meet with contract specifications such as quota, quality and delivery specifications. In
other words, individuals become accountable to the group leadership instead of to the company. The company
loses contact with individual farmers. Unless the group leadership is strong the contract specifications are
unlikely to be met. Conversely, individual contracts place the onus for performance directly on the individual
who is accountable to the company. There is individual ownership and individual excellence can be recognised
and rewarded by the company. Product quality can be monitored when traceability is important (e.g. pesticide
monitoring). The company is able to screen non-performing farmers from future contracts. It is suggested that
a dual contract system might ensure that the company benefits from the best of both systems – a group
contract could address the issues that can only be dealt with by groups whilst individual contacts would ensure
individual accountability.
Appendix 2 is a checklist of points that need to be considered in the contract agreement. Most contracts in
Zimbabwe are short term because of the nature of the crop. Long term contracts reduce the administrative
burden on the company especially when the grower base is very large.
Quotas should be tailor-made to meet with
• The company’s requirements – every effort must be made to ensure that production does not exceed
the company’s ability to process, store or market the produce;
• The farmer’s ability – to ensure that the farmer can meet with the stipulated quota;
• The amount of input support – to ensure that realistic quotas are issued.
The company is under an obligation to purchase all of the farmer’s produce conforming to the minimum quality
criteria – even when oversupply reduces profitability. Companies that have failed to collect produce have
caused serious resentment amongst smallholder farmers in the past. Dzingirai (2003) documents how a
company failed to collect tomatoes from smallholder contracted farmers during a period of over-supply. Most
companies assessed in the project based their quotas on actual volumes from a planted area (e.g. kg/ha). This
method has the additional advantage of allowing the company to monitor farmer performance. Crop
assessments during the growing season can give accurate yield forecasts. If yields fluctuate widely,
abnormalities can be investigated. Where alternative markets exist the company might consider setting quotas
below the farmer’s production capacity. This will enable them to take advantage of high open market prices for
part of their produce and reduce the temptation to side-market.
It is recommended that companies might consider encouraging farmer productivity by through price
incentives. For example, cotton farmers delivering up to 800 kg/ha might receive the standard payment. Each
kilogram delivered in the range 801-1,500 kg/ha might receive a 7.5% premium whilst deliveries greater than
1,501 kg/ha might receive 15% premium. Such a system will encourage farmers to maximise cotton deliveries
and discourage the practice of side-marketing.
The companies interviewed require a diverse range of product grading. In some of the crops (e.g. legumes) a
minimal amount of grading was required. In others farmers needed to meet more stringent requirements. In
such cases it is important that quality specifications are kept simple:
• The minimum number of grades should be used; and
• The specifications for each grade should be easily understood by both company staff and the farmers.
Specifications might include size, weight, maturity, colour, acceptable insect and disease damage,
moisture content etc.
Adherence to these recommendations will reduce misinterpretation and farmer confusion. Vegetable farmers
interviewed at a number of at irrigation schemes expressed ignorance of the criteria used by the company for
grading and said that they had not yet visited the factory where grading was done. Such a situation does not
benefit either party. Clear set guidelines have the additional advantage for the farmer that the company is not
tempted to unfairly raise quality standards during periods of glut. Hy-veld Seeds distributes sample grades to
farmers.
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Sometimes quality needs to be assessed under laboratory conditions (e.g. seed germination for seed
companies, ASTA content for paprika or sucrose content for sugar cane). When this is the case the criteria
should be well explained and understood by the farmers.
All companies interviewed assumed responsibility for crop delivery because transportation was a major
constraint faced by communal farmers. Produce was collected from the farm gate, central collection points or
delivered at the company’s expense. However, the survey identified poor logistical services as being one of
the main causes of company default. When companies assume responsibility for crop delivery it is essential
that they are sufficiently organised with the requisite resources to keep the timetable schedule given to
farmers. Failure to collect produce for any reason will have serious repercussions.
Whatever pricing method is used it is important that farmers should be aware of how prices are calculated, i.e.
price structure should be clearly set out. For contract sustainability, farmers must should at least cover their
costs of production and make a small profit.
High quality should be encouraged through differential pricing. Companies exporting produce are often
uncertain of the prices that they will obtain – the cotton, tea and sugar industries have all used the split
pricing system whereby farmers are paid a top-up at the end of the season, the magnitude of which is
determined by the price the company was paid.
The entire selling process should be well understood and open to farmer scrutiny – anything less will invariably
result in suspicion and soured relationships. Firstly, farmers should be informed in the contract agreement
about when and how they will be paid. This will enable them to plan their cash flows and reduce the incidence
of side-marketing due to uncertain payment terms. Payment delays should be avoided. However, late payment
was identified as one of the areas in which companies commonly default.
Optimally, produce should be purchased shortly after harvest when it is in prime condition. Farmers should be
allowed to verify the weights and grades of their produce. If grading is done at another location farmers should
have an opportunity to send a representative to verify the grades. This will prevent the situation from arising
where poor quality produce is rejected in the absence of any farmer witnesses.
Input credit is often described in an attachment to the main contract. Levels of input credit vary from minimal
to full support. Input credit availed to farmers by the surveyed companies include land preparation, diesel,
seed, fertilisers, agrochemicals, coal, and cash advances. In addition to these, Eaton and Shepherd (2001)
record companies in other countries as providing farmers with various items of farm equipment (hoes,
watering cans, spraying equipment etc.), operation and maintenance costs at irrigation schemes, small water
pumps and school fees. When companies agree to support farmers with input credit it is important that
farmers receive inputs well in advance of the season. Timely preparation will avoid last minute logistical
problems which, unfortunately, have been another common cause for company default in Zimbabwe.
A statement of account signed by each farmer will ensure that misunderstandings do not occur at the time of
loan repayments. Input loan repayments must be calculated in a transparent manner so that the farmer
understands any additional administrative, transport and finance charges. A mistake made by the cotton
industry was to attempt to build the cost of the input support programme into the cotton price (i.e. lower the
price paid to farmers). This resulted in productive farmers being more heavily penalised and encouraged side-
marketing.
Although common in the commercial farming sector, agricultural insurance has not been popular in the
smallholder sector. Production risks are normally borne by the farmers and crop failures due to unforeseen
circumstances can prove difficult to recover from. At the time of the survey, there were a number of insurance
companies that provided insure schemes for smallholders. Companies might consider insuring the crop for
farmers on a credit basis.
6.4. Directed farming
The success of smallholder contract farming hinges, firstly, on farmers producing high yields and secondly, on
delivery of produce to the contracted companies. Reasons for low productivity and farmer default were
discussed in detail in Chapter 5. In Chapter 4 it was noted that many companies would likely achieve better
results if they adopted a directed farming approach characteristic of the Centralised, Nucleus Estate and
Multipartite models. Directed farming was defined as a system in which companies organise farmers and use a
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high level of management input in the farmers’ production. Effective management and monitoring of
smallholder contract farming is a detailed topic which is beyond the scope of this publication. Needless to say,
good company management and extension are fundamental for monitoring farmer performance and improving
farmers’ yields. Many of the causes of low productivity and farmer breach of contract obligation identified
during the course of the study can be minimized when the site is well managed and monitored. Appendix 3
lists additional resources that will be helpful to companies engaged in contract farming.
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7. References
Anonymous (2007). Contract farming hailed. The Business Herald. Friday 20 July 2007.
Dawes, M. A. (2007). A brief overview of the vegetable sector in Zimbabwe. Draft report submitted to SNV,
July 2007.
Dzingirai, V. (2003). Resettlement and Contract Farming in Zimbabwe: The Case of Mushandike. Centre for
Applied Social Sciences, University of Zimbabwe Land Tenure Centre, University of Wisconsin–Madison.
Eaton, C. and A. W. Shepherd. (2001). Contract Farming: Partnerships for growth. FAO Agricultural Services
Bulletin 145. Rome.
Larsen, M. N. (2001). Zimbabwean Cotton Sector Liberalisation: A Case of Successful Private Coordination?
Working Paper Subseries on Globalisation and Economic Restructuring in Africa no. xi. Centre for Development
Research. Copenhagen.
World Bank (2007). World Development Report 2008. Agriculture for Development.
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Appendix 1: Checklist of factors to consider before engaging a community in contract farming Market identification F1 A1 M1
Manufactured product
Is there a proven demand for the product?
Fresh produce Is there a market for the fresh produce?
Side-marketing Is the product readily side-marketed?
Industry organisations
Is there an industry organisation with a smallholder grower database to assist in farmer selection?
Financial/economic assessment
Profit for the company:
It is necessary to ensure that the chosen market will be profitable for the company in the medium to long term. A sensitivity analysis will ensure that production can be done profitably during years of oversupply. The company must also have confidence that the chosen market will be consistently supplied with produce of acceptable quality in order to maintain its support
Profit for the farmer
The company must ensure that the venture is likely to be profitable for the farmers in the medium to long term. Farmers must obtain higher net incomes from the contract than they could from alternative activities with the same, or less, risk. Companies must use realistic yields in order to forecast whether production by farmers can be profitable at prices that the companies are prepared to pay. With knowledge of crop yields and production costs, the company can calculate a realistic pricing structure that is mutually profitable. Guaranteed, regular incomes will encourage farmers to make a long term commitment
Political assessment
Is their political stability? National
Does government policy encourage contract farming?
Rural District Council
District Administrator
AGRITEX DAEO
DOI
Regional/District
Local Councillor
Village headman Village/Community
Farmer committee
Site assessment
General climatic factors e.g. altitude, incidence of frost, daylight hours
Rainfall quantity and distribution
Quantity and quality of water for irrigation
Soil pH and soil fertility
Topography – steeply eroded slopes
Does the natural vegetation pose any threat?
Do the crops currently at the site pose any threat? For example, through species with a similar disease spectrum
Did previous cropping programme pose a threat? For example, nematode build-up
Is there a high incidence of problematic animal or insect species (e.g. moles)
Physical factors
Physical extent of site? e.g. small and scattered plots of land or one large block?
Is there an existing grower group? Group structure
Is the group leadership respected by the community?
Utilities and Distance from company will influence profitability
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Condition of main and access roads for deliveries and collection
Condition of irrigation system infrastructure
Reliable electricity for pumping of irrigation water
Telephones
Reliable power and clean water if any processing/packing is to be done at the site
Protection of cropped areas from animals/theft
Storage – is there secure, water proof storage facilities for company equipment or harvested crops?
Accommodation for extension officer
Hospitals and health
communications
Schools
Under what conditions do the farmers live on the land? e.g. Are they owners or tenants?
Are farmers able to plant where they chose on their plots? Can the company specify the areas where the contracted crop should be planted?
Land availability and tenure
Is there sufficient land and farmers available for commercial viability?
Input availability Material inputs – Is the company able to provide farmers with all of the inputs necessary to grow the crop?
Has the community been involved in contract farming in the past? What was the outcome?
Existing cropping practices – do these pose a problem to the introduction of the contracted crop?
Cultural influences – do cultural responsibilities pose any threat to the contracted crop?
Community organisation – are farmers organised into grower groups? Would they agree to group organisation?
Does the community have a sound record of paying water accounts (ZINWA), council levies and electricity accounts?
How does the community maintain the irrigation system infrastructure e.g. pump breakdown, pipe bursts etc.
Would the community accept individual contract agreements?
Historic productivity – how productive is this community? What are past crop yields?
Social factors
Has the community received any agronomic, managerial, financial or business training?
Institutional support
Are there any government organizations that could assist in building the capacity of the local community?
Is there a legal framework to support contract farming?
Can the government play an arbitration or dispute resolution role?
Are specialized services available to provide institutional support for production, processing and marketing? e.g. research or quarantine facilities
Does government have facilities to strengthen farmer capacities?
Public organisations
Does government have the capacity to vet project companies?
Farmers Unions Are farmers unions supportive of the proposed contract? Would they be able to assist in community mobilization?
Civil organisations Are there any civil organisations that could assist in building the capacity of the local community?
Non-governmental organisations
Are there any government organizations that could assist in building the capacity of the local community?
1 F=favourable, A= adequate, M=marginal
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Appendix 2: Factors to consider when drafting contract specifications General factors Y N
Responsibilities The contract should outline the responsibilities and obligations of each party
Enforcement The manner in which the agreement can be enforced should be clarified
Arbitration The remedies that can be taken if the contract breaks down
Legal requirements
Does the contract meet with the county’s minimum legal requirements?
Contract format Will a simple registration format suffice?
Are the farmers consulted in the drafting of the document?
Is the language easily understood by the smallholder farmer?
Should the contract be written in the local language or bilingual?
Does the company employee explaining the contract understand the document?
Is the farmer given sufficient time to review the document?
Understanding the contract
Is the farmer given a copy of the contract document?
Contract signatory
Signatory Is it important to monitor individual accountability and performance or will a group contract suffice?
Contract specifications
Contract duration Would a short term or long term contract be more suitable?
Has the number of grades been kept to a minimum? Quality standards
Does each grade should have a clear description of quality criteria that are easily understood?
Does the quota match the company’s ability to process, store or market the produce?
Is the farmer able to achieve the quota with the amount of input support?
Is the quota based on actual product volumes for the planted area?
Is the quota based on the level of company input support?
Production quotas
Is it possible to encourage farmers to increase productivity by giving higher prices when specified production targets have been obtained?
Detailed specifications for cultivation practices should be made available to the farmer
All supplied inputs should be used in the correct quantities and farmers should follow recommended cultivation practices
Cultivation practices
No unauthorised agrochemicals should be used
Crop delivery arrangements
Farmers should be informed of transportation arrangements
Farmers should be informed of the pricing structure
Prices should be related to grade specifications
Farmers should be informed of payment times and methods
Pricing arrangements
Farmers should be allowed to verify weights of their produce
Insurance arrangements
Companies might consider making insurance available to farmers
Technical support The contract should specify the extension support availed by the company including the duties of extension staff
Management Farmers should be informed of how the company intends to manage the contract
Input support Details of input support are usually presented as an attachment to the contract agreement
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Appendix 3: Additional reading
Anonymous. 2006. Contract farming offers fresh hope for Africa’s declining agriculture. East Africa Policy Brief.
No 2. NEPAD Secretariat Agriculture Unit, Pretoria. South Africa.
Baker, D. and C. Da Silva. 2006. Contracting issues at various levels of the value chain. Paper presented at
workshop on Governance, Coordination and Distribution along Commodity Value Chains. FAO, Rome, 4-5
March 2006.
Bijman, J. 2008. Contract farming in developing countries: an overview. Wageningen University
Department of Business Administration
Bogetoft, P. and H. B. Olesen. 2002. Ten rules of thumb in contract design: lessons from Danish agriculture.
European Review of Agricultural Economics. 29 (2): 185-204.
Eaton, C. and A. W. Shepherd. 2001. Contract farming – Partnerships for growth. FAO Agricultural Services
Bulletin 145. Rome. Italy.
Likulunga. M. L. 2005. The status of contract farming and contractual arrangements in Zambian agriculture
and agribusiness. FARNPAN Report. University of Zambia. Lusaka. Zambia.
Mudhara, M. and P. Kwaramba. 2002. Marketing through contracts and sub-contracts by smallholder farmers
of Zimbabwe. Friedrich-Ebert-Stiftung Library, 2002 Digital library. Bonn. Germany.
Mwenda I. 2005. Analysis of Contract Farming in Zambia, South Africa, and Malawi. FANRPAN. Pretoria. South
Africa.
Rusike, J., and J. Dimes. 2004. Effecting Change through Private Sector Client Services for Smallholder
Farmers in Africa. New Directions for a Diverse Planet: Proceedings of the 4th International Crop Science
Congress, Brisbane, Australia, 26 Sep – 1 Oct 2004. (www.cropscience.org.au).
Sartorius, K. and J. Kirsten. 2005. The potential of contract farming to expand small-scale production in South
Africa, Malawi and Zambia: a FARNPAN report to determine the way forward. FARNPAN Report. Pretoria. South
Africa.
Shepherd, A. W. 2007. Approaches to linking producers to markets. Agricultural Management, Marketing and
Finance Occasional paper. Rome. South Africa.
Woodend, J. J. 2003. Potential of contract farming as a mechanism for the commercialisation of
smallholder agriculture - The Zimbabwe case study. FAO Report. Harare. Zimbabwe.